by Calculated Risk on 12/12/2018 07:18:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Could Go Even Higher

Mortgage rates rose more noticeably today as a part of a 3 day bounce after hitting the lowest levels in roughly 3 months at the end of last week. Whereas yesterday's increases weren't really worth mentioning, today's hurt--depending on the scenario. [30YR FIXED - 4.75%]
emphasis added

Thursday:
• At 8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 228 thousand initial claims, down from 231 thousand the previous week.

by Calculated Risk on 12/12/2018 03:05:00 PM

From the DMAR: Housing inventory in the Denver area is up nearly 47 percent year to date compared to last year, but sales are down.

In November, year to date, housing inventory has increased 46.76 percent compared to last year in the residential market (single-family and condos), but was down 11.82 percent from last month. Meanwhile, fewer homes sold in the Denver area in November, down 17.27 percent from October, and that dropped the number of sales year to date to less than any in the past three years.
...
The number of homes sold dropped to 3,732, down 17.27 percent from October and 23.6 percent year over year.
emphasis added

Another market with inventory up, and sales down.

by Calculated Risk on 12/12/2018 01:33:00 PM

From the HAR: Houston Real Estate is on Track for Another Record Year

In a display of textbook seasonality, with the holidays sending consumers into their annual retail frenzy, Houston home sales slowed slightly in November. However, it was not enough to knock the real estate market off its record-setting pace.

According to the latest monthly report from the Houston Association of Realtors® (HAR), 6,159 single-family homes sold in November compared to 6,285 a year earlier, representing a 2.0-percent decline. On a year-to-date basis, home sales are 4.6 percent ahead of 2017’s record volume. Inventory edged up from a 3.6-months supply to 3.9 months.…
...
Sales of all property types totaled 7,400 – statistically flat versus last year.
...
Total active listings, or the total number of available properties, climbed 8.9 percent to 40,530. Single-family homes inventory saw some growth in November, reaching a 3.9-months supply versus a 3.6-months supply a year earlier.
emphasis added

Another market with inventory up, but not a huge increase.

by Calculated Risk on 12/12/2018 11:10:00 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 0.3% (4.1% annualized rate) in November. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.3% 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 was unchanged (0.2% annualized rate) in November. The CPI less food and energy rose 0.2% (2.5% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for November here. Motor fuel was down 40% annualized in November.

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 2.2%. Core PCE is for October and increased 1.8% year-over-year.

On a monthly basis, median CPI was at 4.1% annualized, trimmed-mean CPI was at 2.3% annualized, and core CPI was at 2.5% annualized.

Using these measures, inflation picked up slightly on a year-over-year basis in November. Overall, these measures are at or above the Fed's 2% target (Core PCE is below 2%).

by Calculated Risk on 12/12/2018 08:33:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis after rising 0.3 percent in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.

The gasoline index declined 4.2 percent in November, offsetting increases in an array of indexes including shelter and used cars and trucks. Other major energy component indexes were mixed, with the index for fuel oil falling but the indexes for electricity and natural gas rising. The food index rose in November, with the indexes for food at home and food away from home both increasing.

The all items less food and energy index increased 0.2 percent in November. Along with the indexes for shelter and used cars and trucks, the indexes for medical care, recreation, and water and sewer and trash collection also increased. The indexes for wireless telephone services, airline fares, and motor vehicle insurance declined in November.

The all items index increased 2.2 percent for the 12 months ending November, compared to a 2.5-percent increase for the period ending October. The all items less food and energy index rose 2.2 percent in November.
emphasis added

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

by Calculated Risk on 12/12/2018 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications rose 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 7, 2018.

... The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 4 percent higher than the same week one year ago.
...
“Mortgage rates fell across the board last week, driven by a similar slide in Treasuries. Trade fears dominated investors’ concerns for another week, and this was amplified by data released by the U.S. Commerce Department showing a widening trade deficit,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The 30-year fixed mortgage rate decreased 12 basis points over the week back below 5 percent, representing the largest single week drop since 2017.”

Added Kan, “As a result of these recent rate declines, we saw another weekly increase in refinance applications, along with a rise in the average refinance loan size. Larger loans tend to react more readily for a given change in mortgage rates. Meanwhile, purchase application activity also increased over the week and was up more than three percent compared to a year ago.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.96 percent, the lowest level since September 2018, from 5.08 percent, with points increasing to 0.48 from 0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 4.0% year-over-year.

by Calculated Risk on 12/11/2018 08:32:00 PM

Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM: The Consumer Price Index for November from the BLS. The consensus is for no change in CPI, and a 0.2% increase in core CPI.

by Calculated Risk on 12/11/2018 03:52:00 PM

Last Friday, Professor Robert Shiller wrote in the NY Times: The Housing Boom Is Already Gigantic. How Long Can It Last?

We are, once again, experiencing one of the greatest housing booms in United States history.

How long this will last and where it is heading next are impossible to know now.

But it is time to take notice: My data shows that this is the United States’ third biggest housing boom in the modern era.

First, it is important to note that Professor Shiller is discussing house prices, as opposed to housing activity (usually a "housing boom" would refer to new home sales and housing starts).   This is not one of the "greatest housing booms" in terms of new home sales and housing starts - in fact, housing activity is still somewhat low historically.

More Shiller:

Even after factoring in Consumer Price Index inflation, real existing home prices were up almost 40 percent during that period. That is a substantial increase in less than seven years. In fact, based on my data, it amounts to the third strongest national boom in real terms since the Consumer Price Index began in 1913, behind only the explosive run-up in prices that led to the great financial crisis of a decade ago, and one connected with World War II and the great postwar Baby Boom.

Here Shiller is measuring from the house price bottom - when prices were driven down by significant distressed activity - to the current top.   So perhaps some of the recent increase was a bounce back from all the distressed selling.   Shiller dismisses this explanation:

The simplest narrative being given for the current boom is just that the 2008-2009 financial crisis and the so-called Great Recession are over and home prices are returning to normal.

But that explanation does not cut it either. In September they were 11 percent higher than at the 2006 peak in nominal terms, and almost as high in real terms. This is not a return to normal, but a market that appears to be rising to a record.

Nominal prices are 11 percent higher than the previous peak, however real prices are about 9 percent below the previous peak (I wouldn't call that "almost as high").

Also Shiller leaves out a key point - there is an upward slope to real house prices over time.   Shiller has calculated an upward slope of about 0.2% per year for real prices.  I think it is higher.

Shiller did an awesome job of piecing together various price indexes to obtain long term prices.   However, as I've noted before, if Shiller had used some different indexes for earlier periods, his graph would have indicated a larger upward slope for real house prices. Here was an earlier post on this: The upward slope of Real House Prices. A few excerpts from my earlier post:

It is important to realize that Professor Shiller used the quarterly Case-Shiller National index starting in 1987. From 1975 through 1986 he used what is now called the FHFA index. He used other price indexes in earlier periods.
...
The FHFA index used by Shiller was based on a small percentage of transactions back in the '70s. If we look at the CoreLogic index instead, there is a clear upward slope to real house prices.

If Professor Shiller had used the Freddie Mac quarterly index back to 1970 (instead of the PHCPI), there would be more of an upward slope to his graph too. So it is important to understand that for earlier periods the data is probably less accurate.

The indexes I used captured a larger percentage of the market than the indexes Shiller used.

Tom Lawler has also written in depth about this: Lawler: On the upward trend in Real House Prices

During the housing bubble, the difference between a slight upward slope in real prices (0.2% per year according to Shiller's index) and a slightly larger increase in real prices using other indexes (probably between 1% and 1.5% per year) didn't make any difference; there was obviously a huge bubble in house prices.  But when comparing price "booms" over time, there is a huge difference.

If we use 1.5% per year for real price increases, the current "boom" in prices would be the fourth largest since the 1970s (and only about half the size of the late '70s and late '80s price boom), and if we use a 1.0% real increase, the current "boom" is on the same order as the late '70s and '80s price booms.

No big deal, and definitely not a "gigantic" boom in house prices.

Note: Following both the '70s and '80s prices booms, price increases slowed significant and mostly moved sideways for some years in nominal terms.  Maybe that will happen again.

by Calculated Risk on 12/11/2018 01:49:00 PM

A few brief excerpts from a Goldman Sachs research note:

Currently, we see the probability of a funds rate hike at 45% for 2019Q1, 75% for Q2, 70% for Q3, and 60% for Q4 … this represents a 3-hike baseline for 2019. (We recently shifted to this view from our previous 4-hike baseline, mainly because of tighter financial conditions.) The corresponding probability-weighted path … implies 2.0 hikes in 2019, a smaller but still clearly hawkish number when compared to market pricing of 0.7 hikes.

CR Note: Most analysts expect another rate hike will be announced at the conclusion of the FOMC meeting next week (December 19th). However there is a wide range of views on how much the Fed will hike in 2019.

by Calculated Risk on 12/11/2018 11:59:00 AM

By request, here is another update of tracking employment during Presidential terms.  We frequently use Presidential terms as time markers - we could use Speaker of the House, Fed Chair, or any other marker.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (dark blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (dark red) took office.

There was a recession towards the end of President G.H.W. Bush (light purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

Mr. Trump is in Orange (22 months).

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 804,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 391,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased by 20,964,000 under President Clinton (light blue), by 14,717,000 under President Reagan (dark red), 9,041,000 under President Carter (dashed green), 1,509,000 under President G.H.W. Bush (light purple), and 11,907,000 under President Obama (dark blue).

During the first 22 months of Mr. Trump's term, the economy has added 4,132,000 private sector jobs.

 A big difference between the presidencies has been public sector employment.  Note: the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).  However the public sector declined significantly while Mr. Obama was in office (down 266,000 jobs).

During the first 22 months of Mr. Trump's term, the economy has added 65,000 public sector jobs.

The third graph shows the progress towards the Trump goal of adding 10 million jobs over his 4 year term.

After 22 months of Mr. Trump's presidency, the economy has added 4,197,000 jobs, about 386,000 behind the projection.