by Calculated Risk on 9/20/2019 03:07:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data (released last week) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

For Q2 2019, the Net Equity Extraction was $23 billion, or a 0.6% of Disposable Personal Income (DPI) .

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago.

MEW has been mostly positive for the last four years. With a slower rate of debt cancellation, MEW will likely be mostly positive going forward - but nothing like during the housing bubble.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $76 billion in Q2.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 9/20/2019 01:27:00 PM

The Federal Reserve released the Q2 2019 Flow of Funds report today: Flow of Funds.

The net worth of households and nonprofits rose to $113.5 trillion during the second quarter of 2019. The value of directly and indirectly held corporate equities increased $0.9 trillion and the value of real estate increased $0.3 trillion.

Household debt increased 4.3 percent at an annual rate in the second quarter of 2019. Consumer credit grew at an annual rate of 4.6 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 3.2 percent.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2019, household percent equity (of household real estate) was at 64.2% - down slightly from Q1.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 64.2% equity - and about 2 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $76 billion in Q2.

Mortgage debt is still down from the peak during the housing bubble, and, as a percent of GDP is at 48.8% (the lowest since 2001), down from a peak of 73.5% of GDP during the housing bubble.

The value of real estate, as a percent of GDP, decreased slightly in Q2, and is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

by Calculated Risk on 9/20/2019 11:19:00 AM

From Merrill Lynch:

We expect 2Q GDP to be revised slightly higher to 2.1% qoq saar in the final release. 3Q GDP tracking remains at 2.0% qoq saar. [Sept 20 estimate]
emphasis added

From Goldman Sachs:

[W]e left our Q3 GDP tracking estimate unchanged on a rounded basis at +2.2% (qoq ar). [Sept 19 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 2.2% for 2019:Q3 and 2.0% for 2019:Q4. [Sept 20 estimate].

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2019 is 1.9 percent September 18, up from 1.8 percent on September 13. [Sept 18 estimate]

CR Note: The GDP estimates increased this week mostly due to better than expected housing starts and industrial production numbers. These estimates suggest real GDP growth will be around 2.0% annualized in Q3.

by Calculated Risk on 9/20/2019 10:12:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were lower in August in 5 states, higher in 3 states, and stable in 42 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Five states had jobless rate decreases from a year earlier, 2 states had increases, and 43 states and the District had little or no change.
...
Vermont had the lowest unemployment rate in August, 2.1 percent. The rates in Alabama (3.1 percent), Alaska (6.2 percent), Illinois (4.0 percent), Maine (2.9 percent), and New Jersey (3.2 percent) set new series lows. (All state series begin in 1976.) Alaska had the highest jobless rate, 6.2 percent.
emphasis added

Click on graph for larger image.

This graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 1976.

At the worst of the great recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently only one state, Alaska, has an unemployment rate at or above 6% (dark blue).  Note that Alaska set a new series low (since 1976).  Three states and the D.C. have unemployment rates above 5%; Alaska, Arizona and Mississippi.

A total of eleven states are at a series low: Alabama, Alaska, Arkansas, California, Illinois, Maine, New Jersey, Oregon, South Carolina, Texas and Vermont.

by Calculated Risk on 9/20/2019 09:06:00 AM

From CoreLogic: Homeowner Equity Insights, 2nd Quarter 2019

In the second quarter 2019, the total number of mortgaged residential properties with negative equity decreased 7% from the first quarter 2019 to 2 million homes, or 3.8% of all mortgaged properties. On a year-over-year basis, negative equity fell 9% from 2.2 million homes, or 4.3% of all mortgaged properties, in the second quarter of 2018.

The national aggregate value of negative equity was approximately $302.7 billion at the end of the second quarter of 2019. This is down quarter over quarter by approximately $2.6 billion, from $305.3 billion in the first quarter of 2019.

Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, based on the CoreLogic equity data analysis which began in the third quarter of 2009.
emphasis added

Click on graph for larger image.

This graph from CoreLogic shows the percent negative equity by states.

On a year-over-year basis, the number of homeowners with negative equity has declined from 2.2 million to 2.0 million.

by Calculated Risk on 9/19/2019 06:40:00 PM

Friday:
• At 10:00 AM ET, State Employment and Unemployment (Monthly) for August 2019

• At 12:00 PM, Financial Accounts of the United States (aka Q2 Flow of Funds) from the Federal Reserve.

by Calculated Risk on 9/19/2019 04:11:00 PM

I wrote this in July 2018 (see: Has Housing Market Activity Peaked? and Has the Housing Market Peaked? (Part 2)

First, I think it is likely that existing home sales will move more sideways going forward. However it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc. - but overall the economic impact is small compared to a new home sale.

Also I think the growth in multi-family starts is behind us, and that multi-family starts peaked in June 2015. See: Comments on June Housing Starts

For the economy, what we should be focused on are single family starts and new home sales. As I noted in Investment and Recessions "New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight."

If new home sales and single family starts have peaked that would be a significant warning sign.   Although housing is under pressure from policy (negative impact from tax, immigration and trade policies), I do not think housing has peaked, and I think new home sales and single family starts will increase further over the next couple of years.

Since that post, existing home sales have mostly moved sideways, and both new home sales and single family starts have hit new cycle highs.

Here is the graph I like to use to track tops and bottoms for housing activity. This is a graph of Single family housing starts, New Home Sales, and  Residential Investment (RI) as a percent of GDP.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

RI as a percent of GDP has been sluggish recently, mostly due to softness in multi-family residential.   However, both single family starts and new home sales have set new cycle highs this year.

Also, look at the relatively low level of RI as a percent of GDP, new home sales and single family starts compared to previous peaks.   To have a significant downturn from these levels would be surprising.

by Calculated Risk on 9/19/2019 11:55:00 AM

Earlier: NAR: Existing-Home Sales Increased to 5.49 million in August

A few key points:

1) Existing home sales were up 2.6% year-over-year (YoY) in August.  This was the second consecutive YoY increase - following 16 consecutive months with a YoY decrease in sales.

2) Inventory is still low, and was down 2.6% year-over-year (YoY) in August.

3) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus. See: Lawler: Early Read on Existing Home Sales in August.   The consensus was for sales of 5.38 million SAAR.  Lawler estimated the NAR would report 5.42 million SAAR in July, and the NAR actually reported 5.49 million SAAR.

Click on graph for larger image.

4) Year-to-date sales are down about 2.6% compared to the same period in 2018.   On an annual basis, that would put sales around 5.20 million in 2019.  Sales slumped at the end of 2018 and in January 2019 due to higher mortgage rates, the stock market selloff, and fears of an economic slowdown.

The comparisons will be easier towards the end of this year, and with lower mortgage rates, sales might even finish the year unchanged or even up from 2018.

The second graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in August (534,000, red column) were below sales in August 2018 (539,000, NSA). There were fewer selling days in August 2019 than in 2018.

Overall this was a solid report.

by Calculated Risk on 9/19/2019 10:09:00 AM

From the NAR: Existing-Home Sales Increase 1.3% in August

Existing-home sales inched up in August, marking two consecutive months of growth, according to the National Association of Realtors®. Three of the four major regions reported a rise in sales, while the West recorded a decline last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.3% from July to a seasonally adjusted annual rate of 5.49 million in August. Overall sales are up 2.6% from a year ago (5.35 million in August 2018).
...
Total housing inventory at the end of August decreased to 1.86 million, down from 1.90 million existing-homes available for sale in July, and marking a 2.6% decrease from 1.91 million one year ago. Unsold inventory is at a 4.1-month supply at the current sales pace, down from 4.2 months in July and from the 4.3-month figure recorded in August 2018.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in August (5.49 million SAAR) were up 1.3% from last month, and were 2.6% above the August 2018 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.86 million in August from 1.90 million in July.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was down 2.6% year-over-year in August compared to August 2018.

Months of supply decreased to 4.1 months in August.

This was above the consensus forecast.  For existing home sales, a key number is inventory - and inventory is still low. I'll have more later …

by Calculated Risk on 9/19/2019 09:39:00 AM

From the Philly Fed: August 2019 Manufacturing Business Outlook Survey

Manufacturing activity in the region continued to expand this month, according to results from the September Manufacturing Business Outlook Survey. The survey's broad indicators remained positive, although their movements were mixed: The indexes for general activity and new orders fell, while the indexes for shipments and employment increased. The survey’s price indexes increased notably this month. The survey’s future general activity index moderated but continues to suggest growth over the next six months.

The diffusion index for current general activity fell 5 points this month to 12.0.
emphasis added

This was at the consensus forecast. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through September), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

These early reports suggest the ISM manufacturing index will probably be weak again in September.