by Calculated Risk on 5/02/2019 08:32:00 AM

The DOL reported:

In the week ending April 27, the advance figure for seasonally adjusted initial claims was 230,000, unchanged from the previous week's unrevised level of 230,000. The 4-week moving average was 212,500, an increase of 6,500 from the previous week's unrevised average of 206,000
emphasis added

The previous week was unrevised.

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 increased to 212,500.

This was well above the consensus forecast.

by Calculated Risk on 5/01/2019 06:39:00 PM

The Case-Shiller house price indexes for February were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Matthew Speakman at Zillow: February Case-Shiller Results and March Forecast: Home Price Growth Slowest Since 2012

Home prices continued to tap on the brakes in February, moderating their earlier breakneck speeds, particularly in pricey West Coast markets. The S&P CoreLogic Case-Shiller National Home Price Index, which tracks home prices nationally and in major metro areas, rose 4% in February from the previous year, a slowdown from 4.2% in January.
...
Below is Zillow’s Case-Shiller forecast for March. It’s scheduled for release on May 28.

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 4.0% in March, the same as in February.

The Zillow forecast is for the 20-City index to decline to 2.6% YoY in March, and for the 10-City index to decline to 2.3% YoY.

by Calculated Risk on 5/01/2019 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
emphasis added

by Calculated Risk on 5/01/2019 11:14:00 AM

From the Census Bureau reported that overall construction spending decreased in March:

Construction spending during March 2019 was estimated at a seasonally adjusted annual rate of $1,282.2 billion, 0.9 percent below the revised February estimate of $1,293.3 billion. The March figure is 0.8 percent below the March 2018 estimate of $1,293.1 billion.

Both private and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $961.5 billion, 0.7 percent below the revised February estimate of $968.6 billion. ...

In March, the estimated seasonally adjusted annual rate of public construction spending was $320.7 billion, 1.3 percent below the revised February estimate of $324.7 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending had been increasing - but turned down in the 2nd half of 2018 - and is now 26% below the bubble peak.

Non-residential spending is 11% above the previous peak in January 2008 (nominal dollars).

Public construction spending is just below the previous peak in March 2009, and 23% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is down 8%. Non-residential spending is up 2% year-over-year. Public spending is up 1% year-over-year.

This was well below consensus expectations, and spending for January and February were revised down significantly.  A weak report.

by Calculated Risk on 5/01/2019 10:05:00 AM

The ISM manufacturing index indicated expansion in April. The PMI was at 52.8% in April, down from 55.3% in March. The employment index was at 52.4%, down from 57.5% last month, and the new orders index was at 51.7%, down from 57.4%.

From the Institute for Supply Management: April 2019 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 120th consecutive month, say the nation—s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: "The April PMI® registered 52.8 percent, a decrease of 2.5 percentage points from the March reading of 55.3 percent. The New Orders Index registered 51.7 percent, a decrease of 5.7 percentage points from the March reading of 57.4 percent. The Production Index registered 52.3 percent, a 3.5-percentage point decrease compared to the March reading of 55.8 percent. The Employment Index registered 52.4 percent, a decrease of 5.1 percentage points from the March reading of 57.5 percent. The Supplier Deliveries Index registered 54.6 percent, a 0.4-percentage point increase from the March reading of 54.2 percent. The Inventories Index registered 52.9 percent, an increase of 1.1 percentage points from the March reading of 51.8 percent. The Prices Index registered 50 percent, a 4.3-percentage point decrease from the March reading of 54.3 percent.
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 55.0%, and suggests manufacturing expanded at a slower pace in April than in March.

by Calculated Risk on 5/01/2019 08:18:00 AM

From ADP:

Private sector employment increased by 275,000 jobs from March to April according to the April ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“April posted an uptick in growth after the first quarter appeared to signal a moderation following a strong 2018,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The bulk of the overall growth is with service providers, adding the strongest gain in more than two years.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is holding firm, as businesses work hard to fill open positions. The economic soft patch at the start of the year has not materially impacted hiring. April’s job gains overstate the economy’s strength, but they make the case that expansion continues on.”

This was well above the consensus forecast for 180,000 private sector jobs added in the ADP report. 

The BLS report will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in April.

by Calculated Risk on 5/01/2019 07:00:00 AM

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

Mortgage applications decreased 4.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 26, 2019.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 1 percent higher than the same week one year ago.
...
“Mortgage rates were lower last week – with the 30-year fixed rate declining to 4.42 percent – as concerns over global growth, particularly in Germany, outweighed more positive domestic news on first quarter GDP growth and business investment,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Applications to refinance and purchase a home both fell, but purchase activity still remained slightly above year ago levels. The drop in refinances were driven by fewer FHA and VA loan applications, which typically lag the movement of conventional loans.”

Added Kan, “The ARM share of applications decreased to 6.2 percent, its lowest share since August 2018. So far in 2019, we continue to see a preference for 7/1 ARMs, which account for around 36 percent of all ARM applications, followed by 10/1 and 5/1 ARMs. This is another indication that the few borrowers who choose to apply for ARM loans are electing to reap the benefit of lower rates, as well as some rate stability.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.42 percent from 4.46 percent, with points increasing to 0.46 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.

Once mortgage rates fell more than 50 bps from the highs of last year, a number of recent buyers were able to refinance.  But it would take another significant decrease in rates to see a further increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 1% year-over-year.

by Calculated Risk on 5/01/2019 01:12:00 AM

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

• At All day: Light vehicle sales for April. The consensus is for light vehicle sales to be 17.0 million SAAR in April, down from 17.5 million in March (Seasonally Adjusted Annual Rate).

• At 8:15 AM: The ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for 180,000 payroll jobs added in April, up from 129,000 added in March.

• At 10:00 AM: ISM Manufacturing Index for April. The consensus is for the ISM to be at 55.0, down from 55.3 in March.

• At 10:00 AM: Construction Spending for March. The consensus is for a 0.2% increase in construction spending.

• At 2:00 PM: FOMC Meeting Announcement. No change to policy is expected at this meeting.

• At 2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 4/30/2019 06:24:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate was decreased to 0.74% in March, from 0.76% in February. The serious delinquency rate is down from 1.16% in March 2018.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

This matches is the lowest serious delinquency rate for Fannie Mae since August 2007.

Click on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 2.68% are seriously delinquent. For loans made in 2005 through 2008 (4% of portfolio), 4.50% are seriously delinquent, For recent loans, originated in 2009 through 2018 (93% of portfolio), only 0.33% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The increase late last year in the delinquency rate was due to the hurricanes - there were no worries about the overall market.

I expect the serious delinquency rate will probably decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

by Calculated Risk on 4/30/2019 02:01:00 PM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through February 2019).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.