by Calculated Risk on 7/13/2018 08:05:00 AM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year (YoY) change for non-contingent inventory in Houston, Las Vegas and Sacramento (all through June 2018), and also Phoenix (through May) and total existing home inventory as reported by the NAR (through May 2018).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 26% year-over-year in June (inventory was still very low), and has increased YoY for nine consecutive months. 

Also note that inventory is still down 11% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.   Currently I expect national inventory to be up YoY by the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (and has already bottomed in some areas like California).

by Calculated Risk on 7/12/2018 06:42:00 PM

Friday:
• At 10:00 AM ET, University of Michigan's Consumer sentiment index (Preliminary for July).

• At 11:00 AM, Federal Reserve Monetary Policy Report to Congress

From SacRealtor.org: June 2018 Statistics – Sacramento Housing Market – Single Family Homes

June closed with 1,767 sales, a 2.1% increase from May’s 1,730. Compared to June last year (1,824), the figure is a 3.1% decrease. Of the 1,767 sales this month, 225 (12.7%) used cash financing, 1,104 (62.5%) used conventional, 302 (17.1%) used FHA, 101 (5.7%) used VA and 35 (2%) used Other† types of financing.
...
Active Listing Inventory increased 6% from 2,509 to 2,660 units. The Months of Inventory, however, remained unchanged at 1.5 Months. This figure represents the amount of time (in months) it would take for the current rate of sales to deplete the total active listing inventory. [CR Note: Active inventory is up 26.4% year-over-year]

The Average DOM (days on market) increased from 20 to 21 from May to June and the Median DOM increased from 9 to 10. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” Of the 1,767 sales this month, 80.1% (1,415) were on the market for 30 days or less and 92.4% (1,632) were on the market for 60 days or less.
emphasis added

CR Note: Inventory is still low, but now increasing significantly year-over-year in Sacramento.

by Calculated Risk on 7/12/2018 04:08:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 7 July

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 1-7 July 2018, according to data from STR.

In comparison with the week of 2-8 July 2017, the industry recorded the following:

• Occupancy: -3.1% to 63.5%
• Average daily rate (ADR): +1.1% to US$123.59
• Revenue per available room (RevPAR): -2.0% to US$78.47

STR analysts note that occupancy declines were mostly a result of the Fourth of July holiday, especially early in the week.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

The occupancy rate, to date, is slightly ahead of the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the occupancy rate will be solid through the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/12/2018 02:00:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.1 percent over the last 12 months to an index level of 246.196 (1982-84=100). For the month, the index increased 0.2 percent prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

• In 2017, the Q3 average of CPI-W was 239.668.

This was the highest Q3 average, so we have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 3.1% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will probably be over 3% this year, the largest annual increase since 2012.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2017 yet, but wages probably increased again in 2017. If wages increased the average of the last three years, then the contribution base next year will increase to around $132,000 in 2019, from the current $128,400.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 7/12/2018 11:30:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.8% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.7% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.6% annualized rate) in June. The CPI less food and energy rose 0.2% (2.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for June here.  Motor fuel was up 7% annualized in June.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.8%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.3%. Core PCE is for May and increased 1.96% year-over-year.

On a monthly basis, median CPI was at 2.8% annualized, trimmed-mean CPI was at 2.7% annualized, and core CPI was at 1.6% annualized.

Using these measures, inflation increased year-over-year in June.  Overall, these measures are above the Fed's 2% target (Core PCE is close).

by Calculated Risk on 7/12/2018 08:42:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in June on a seasonally adjusted basis after rising 0.2 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.9 percent before seasonal adjustment.

The indexes for shelter, gasoline, and food all rose to lead to the seasonally adjusted increase in the all items index. The food index increased 0.2 percent in June, with the indexes for food at home and food away from home both rising 0.2 percent. Despite a 0.5-percent increase in the gasoline index, the energy index declined 0.3 percent, with the indexes for electricity and natural gas both falling.

The index for all items less food and energy rose 0.2 percent in June. … The all items index rose 2.9 percent for the 12 months ending June; this was the largest 12-month increase since the period ending February 2012. The index for all items less food and energy rose 2.3 percent for the 12 months ending June.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was close to the consensus forecast.

by Calculated Risk on 7/12/2018 08:34:00 AM

The DOL reported:

In the week ending July 7, the advance figure for seasonally adjusted initial claims was 214,000, a decrease of 18,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 231,000 to 232,000. The 4-week moving average was 223,000, a decrease of 1,750 from the previous week's revised average. The previous week's average was revised up by 250 from 224,500 to 224,750.
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 223,000.

This was lower than the consensus forecast. The low level of claims suggest few layoffs.

by Calculated Risk on 7/11/2018 06:27:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 225 thousand initial claims, down from 231 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for June from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

by Calculated Risk on 7/11/2018 03:28:00 PM

A long, long, long time ago - almost twelve years ago - I wrote Investment and Recessions, explaining the usefulness of New Home Sales as a leading indicator.

Here are some updated graphs. My view is new home sales and housing starts are two of the best leading indicators for the economy (but not always).

The first graph shows the change in real GDP and Private Fixed Investment over the preceding four quarters, shaded areas are recessions. (Source: BEA)

Click on graph for larger image.

A couple of observations:

1) Since 1948, private fixed investment has fallen during every economic recession.

2) Private fixed investment has fallen 14 times since 1948, with only 11 recessions.

So what happened during the periods around 1951, 1967 and 1986 to keep the economy out of recession? These are the periods when private investment fell, but the economy didn't slide into recession. The answer is generally the same for all three periods: a surge in defense spending. The defense spending in the early '50s was due to the Korean war, in the mid '60s the Vietnam war, and in the mid '80s a general defense build-up helped offset a small decline in private investment. The mid '80s also saw a surge in MEW (mortgage equity withdrawal) that also contributed to GDP growth.

The second graph shows the separation of private fixed investment into residential and nonresidential components.

This graph shows something very interesting: in general, residential investment leads nonresidential investment. There are periods when this observation doesn't hold - like '95 when residential investment fell and the growth of nonresidential investment remained strong.

Another interesting period was 2001 when nonresidential investment fell significantly more than residential investment. Obviously the fall in nonresidential investment was related to the bursting of the stock market bubble.

But the most useful information is that typically recessions are preceded by declines in residential investment. Maybe we can use that information.

The third graph shows the YoY change in New Home Sales from the Census Bureau.

Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.

Some observations:

1) When the YoY change in New Home Sales falls about 20%, usually a recession will follow. The one exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

2) It is also interesting to look at the '86/'87 and the mid '90s periods. New Home sales fell in both of these periods, although not quite 20%. As noted earlier, the mid '80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid '90s, nonresidential investment remained strong.

Conclusions:

1) New Home Sales appears to be an excellent leading indicator.

2) Currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight.

by Calculated Risk on 7/11/2018 10:20:00 AM

Some information from mortgage broker Solyent Green is People (an update):

For people with foreclosures or short sales on their record, the waiting period depends on if there are "Extenuating Circumstances" EC ( death in family, company relocation/shut down - about 5/10% of cases) or if the foreclosure or short sale was due to "Financial Mismanagement" FM (the majority of cases).

Jumbo loans, Foreclosure: 7 years (FM and EC)
Jumbo loans, Short Sale: 7 years FM, only 4 years EC
Fannie/Freddie, Foreclosure: 7 years FM, 3 years EC
Fannie/Freddie, Short Sale: 4 years FM, 2 years EC
FHA Foreclosure/Short Sale: 3 years (FM and EC)

Click on graph for larger image.

This graph from Black Knight shows the number of active foreclosure since 2000.

The vast majority of foreclosures were in the 2008 through 2013 period, so many of those people who lost home in the great recession are eligible to borrow again now (or will be soon).

CR Note: Even though people are eligible to borrow, doesn't mean they will. They will have to saved enough for a downpayment, and many of these people are psychological scarred (and will wait longer to buy again).