by Calculated Risk on 10/08/2019 09:28:00 PM

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

• At 10:00 AM, Job Openings and Labor Turnover Survey for August from the BLS.

• At 2:00 PM, FOMC Minutes, Meeting of September 17-18, 2019• At 6:00 AM, NFIB Small Business Optimism Index for September.

by Calculated Risk on 10/08/2019 04:09:00 PM

The Northwest Multiple Listing Service reported Northwest MLS Brokers Say Transition to Fall Creating Opportunities for Buyers

Northwest Multiple Listing Service brokers reported year-over-year gains in pending sales, closed sales and prices, but its report summarizing September activity also showed an 18% drop in inventory compared to a year ago.

At the end of September, MLS brokers reported 15,982 total active listings, down more than 18% from the same month a year ago when the selection totaled 19,526 listings.
emphasis added

The press release is for the Northwest. In King County, sales were up 7.5% year-over-year, and active inventory was down 17.5% year-over-year.

In Seattle, sales were up 12.3% year-over-year, and inventory was down slightly year-over-year..  The year-over-year increase in inventory has ended, and the months of supply is still low in Seattle (2.6 months).   In many areas it appears the inventory build that started last year is ending.

by Calculated Risk on 10/08/2019 02:34:00 PM

Excerpt from Fed Chair Powell: Data-Dependent Monetary Policy in an Evolving Economy

What Does Data Dependence Mean at Present?
In summary, data dependence is, and always has been, at the heart of policymaking at the Federal Reserve. We are always seeking out new and better sources of information and refining our analysis of that information to keep us abreast of conditions as our economy constantly reinvents itself. Before wrapping up, I will discuss recent developments in money markets and the current stance of monetary policy.

Our influence on the financial conditions that affect employment and inflation is indirect. The Federal Reserve sets two overnight interest rates: the interest rate paid on banks' reserve balances and the rate on our reverse repurchase agreements. We use these two administered rates to keep a market-determined rate, the federal funds rate, within a target range set by the FOMC. We rely on financial markets to transmit these rates through a variety of channels to the rates paid by households and businesses—and to financial conditions more broadly.

In mid-September, an important channel in the transmission process—wholesale funding markets—exhibited unexpectedly intense volatility. Payments to meet corporate tax obligations and to purchase Treasury securities triggered notable liquidity pressures in money markets. Overnight interest rates spiked, and the effective federal funds rate briefly moved above the FOMC's target range. To counter these pressures, we began conducting temporary open market operations. These operations have kept the federal funds rate in the target range and alleviated money market strains more generally.

While a range of factors may have contributed to these developments, it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressures can lead to outsized movements in money market interest rates. This volatility can impede the effective implementation of monetary policy, and we are addressing it. Indeed, my colleagues and I will soon announce measures to add to the supply of reserves over time. Consistent with a decision we made in January, our goal is to provide an ample supply of reserves to ensure that control of the federal funds rate and other short-term interest rates is exercised primarily by setting our administered rates and not through frequent market interventions. Of course, we will not hesitate to conduct temporary operations if needed to foster trading in the federal funds market at rates within the target range.

Reserve balances are one among several items on the liability side of the Federal Reserve's balance sheet, and demand for these liabilities—notably, currency in circulation—grows over time. Hence, increasing the supply of reserves or even maintaining a given level over time requires us to increase the size of our balance sheet. As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves.18 That time is now upon us.

I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy, to which I now turn.

Our goal in monetary policy is to promote maximum employment and stable prices, which we interpret as inflation running closely around our symmetric 2 percent objective. At present, the jobs and inflation pictures are favorable. Many indicators show a historically strong labor market, with solid job gains, the unemployment rate at half-century lows, and rising prime-age labor force participation. Wages are rising, especially for those with lower-paying jobs. Inflation is somewhat below our symmetric 2 percent objective but has been gradually firming over the past few months. FOMC participants continue to see a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent objective as most likely. Many outside forecasters agree.

But there are risks to this favorable outlook, principally from global developments. Growth around much of the world has weakened over the past year and a half, and uncertainties around trade, Brexit, and other issues pose risks to the outlook. As those factors have evolved, my colleagues and I have shifted our views about appropriate monetary policy toward a lower path for the federal funds rate and have lowered its target range by 50 basis points. We believe that our policy actions are providing support for the outlook. Looking ahead, policy is not on a preset course. The next FOMC meeting is several weeks away, and we will be carefully monitoring incoming information. We will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis. Taking all that into account, we will act as appropriate to support continued growth, a strong job market, and inflation moving back to our symmetric 2 percent objective.
emphasis added

by Calculated Risk on 10/08/2019 01:58:00 PM

This is almost sold out!

On October 23rd, I will be one of three speakers at the "2020 Economic Forecast featuring the UCI Paul Merage School of Business" in Newport Beach, California, sponsored by the Newport Beach Chamber of Commerce.

UCI Finance Professor Christopher Schwarz and I will be discussing the 2020 economic outlook, and Dr. Richard Afable will be discussing "The Future of the Healthcare System".

This is a lunch time event (from 11:15 am to 1:30 pm) at the Balboa Bay Resort.

Click here for more information and tickets.  Tickets are $65 for members, and $75 for non-members and includes lunch.   (I'm speaking for free).

Or click on the banner below.

by Calculated Risk on 10/08/2019 10:56:00 AM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada home prices inch up as supply stays tight; GLVAR housing statistics for September 2019

The total number of existing local homes, condos and townhomes sold during September was 3,430. Compared to one year ago, September sales were up 12.9% for homes and up 19.5% for condos and townhomes.

As for inventory, by the end of September, GLVAR reported 7,334 single-family homes listed for sale without any sort of offer. That’s up 19.3% from one year ago. For condos and townhomes, the 1,830 properties listed without offers in September represented a 35.0% increase from one year ago.

While the local housing supply is up from one year ago, Carpenter said it’s still well below the six-month supply that is considered to be a more balanced market. At the current sales pace, she said Southern Nevada has less than a three-month supply of homes available for sale.
...
[T]he number of so-called distressed sales remains near historically low levels. GLVAR reported that short sales and foreclosures combined accounted for just 2.0% of all existing local property sales in September. That compares to 2.5% of all sales one year ago and 5.2% two years ago.
emphasis added

1) Overall sales were up 14.1% year-over-year to 3,430 in September 2019 from 3,005 in September 2018.

2) Active inventory (single-family and condos) is up from a year ago, from a total of 7,504 in September 2018 to 9,164 in September 2019. Note: Total inventory was up 22% year-over-year. This is a significant increase in inventory, although the year-over-year increase is down substantially from earlier this year.  And months of inventory is still low.

3) Low level of distressed sales.

by Calculated Risk on 10/08/2019 08:49:00 AM

CR Note: Most of this survey is noise, but there is some information, especially on the labor market and the "Single Most Important Problem".

From the National Federation of Independent Business (NFIB): September 2019 Report: Small Business Optimism Declines but Remains Historically High

The small business Optimism Index maintained a historically solid reading, but took a dip in September, falling 1.3 points to 101.8.
..
Job creation was firm in September, with an average addition of 0.10 workers per firm compared to 0.19 in August. Net job creation has faded steadily since February’s 0.52 workers per firm to 0.1, no surprise as “finding qualified workers” to fill job openings hit a record high of 27 percent in August. Finding qualified workers remains a top problem, with 23 percent reporting it as their number one problem, down 4 points from August’s record high.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index decreased to 101.9 in September.

Note: Usually small business owners complain about taxes and regulations (currently 2nd and 3rd on the "Single Most Important Problem" list).  However, during the recession, "poor sales" was the top problem. Now the difficulty of finding qualified workers is a top problem.

by Calculated Risk on 10/07/2019 09:18:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Might be Hitting Some Resistance

Mortgage rates moved lower every week for the past 3 weeks. They covered a respectable amount of ground during that time and ultimately erased most of September's damage by Friday afternoon.

In outright terms, September's weakness pushed the average 30yr fixed rate quote roughly 3/8ths of a percentage point (.375%) higher. The past 3 weeks have helped to claw back roughly 0.25% of that. [Most Prevalent Rates 30YR FIXED - 3.625%]
emphasis added

Tuesday:
• At 6:00 AM, NFIB Small Business Optimism Index for September.

• At 8:30 AM, The Producer Price Index for September from the BLS. The consensus is for a 0.1% increase in PPI, and a 0.2% increase in core PPI.

• At 2:30 PM, Speech, Fed Chair Jerome Powell, Data Dependence in an Evolving Economy, At the 61st National Association for Business Economics (NABE) Annual Meeting - Trucks and Terabytes: Integrating the 'Old' and 'New' Economies, Denver, Colorado

by Calculated Risk on 10/07/2019 03:29:00 PM

First a few excerpts from the WaPo: Federal government has dramatically expanded exposure to risky mortgages

The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay.
…
Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep.

Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier.

First, the standard maximum total debt-to-income (DTI) ratio is 36% for Fannie. This can be increased to 45% if certain criteria are meet (higher credit scores, higher reserves), and even 50% in some circumstances (using DU: Desktop Underwrite).   The article is pointing out that a larger percentage of borrowers now have total DTI above 36%, and that is a little concerning - since it means those borrowers are more leveraged.

But this is nothing like lending during the bubble.

Remember the worst loans during the bubble were the private label loans that layered all kinds of risk. (note: Read Tanta's piece "Reflections on Alt-A").   We aren't seeing any of the crazy private label loans that we saw back then.  There are people trying to blame Fannie and Freddie, but in reality the GSE's were more victims than cause of the housing bubble.

My view is Fannie and Freddie shouldn't be loosening standards, but I don't think these mortgages are that "risky".

by Calculated Risk on 10/07/2019 12:05:00 PM

Here is another monthly update on framing lumber prices.   Lumber prices declined from the record highs in early 2018, and are now mostly unchnaged year-over-year.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through Aug 16, 2019 (via NAHB), and 2) CME framing futures.

Click on graph for larger image in graph gallery.

Right now Random Lengths prices are down 7% from a year ago, and CME futures are up  1% year-over-year.

There is a seasonal pattern for lumber prices, and usually prices will increase in the Spring, and peak around May, and then bottom around October or November - although there is quite a bit of seasonal variability.

The trade war is a factor with reports that lumber exports to China have declined by 40% since last September.

by Calculated Risk on 10/07/2019 08:55:00 AM

Black Knight released their Mortgage Monitor report for August today. According to Black Knight, 3.45% of mortgages were delinquent in August, down from 3.52% in August 2018. Black Knight also reported that 0.48% of mortgages were in the foreclosure process, down from 0.54% a year ago.

This gives a total of 3.93% delinquent or in foreclosure.

Press Release: Black Knight Mortgage Monitor: Lower Interest Rate Environment Boosts Home Affordability to Nearly Three-Year High; Home Price Growth Flat in August

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. This month, Black Knight’s analysts examined the impact of recent interest rate declines on home affordability, finding yet another situation where rate shifts in either direction have profound impact. As Black Knight Data & Analytics President Ben Graboske explained, the current lower interest rate environment has provided a boost to potential homebuyers.

“Back in November 2018, we were reporting on home affordability hitting a nine-year low,” said Graboske. “Interest rates were nearing 5%, pushing the share of national median income required to make the principal and interest (P&I) payments on the purchase of the average-priced home to 23.7%. While still below long-term averages, that made housing the least affordable it had been since 2009, spurring a noticeable and extended slowdown in home price growth. In the time since, rates have tumbled and the affordability outlook has improved significantly. That payment-to-income ratio is now 20.7%, which is the second lowest it has been in 20 months, behind only August of this year, and about 4.5% below the long-term, pre-crisis norm. To help quantify the boost this has given to homebuyers, consider that today’s prevailing 30-year rate has cut the monthly P&I payment to purchase the average-priced home by 10% – about $124 per month – from November. Put another way, the decline in rates since November has been enough to boost buying power by $46,000 while keeping monthly P&I payments the same.

“Despite falling interest rates and steadily improving affordability over the preceding eight months, annual home price growth held flat in August at 3.8% after rising for the first time in 17 months in July. It remains to be seen if this is merely a lull in what could be a reheating housing market, or a sign that low interest rates and stronger affordability may not be enough to muster another meaningful rise in home price growth across the U.S. That the strongest gains in – and strongest levels of – affordability were in August and early September could bode well for September/October housing numbers. As such, we’ll be keeping a close eye on the numbers coming out of the Black Knight Home Price Index over the coming months.”
emphasis added

Click on graph for larger image.

Here is a graph from the Mortgage Monitor that shows the National delinquency rate over time.

From Black Knight:

• The national delinquency rate currently stands at 3.45%, within 0.09% of the record low set in May 2019 and 0.94% below the pre-recession August average of 4.39%

• The month’s relatively flat movement in mortgage delinquencies (-0.15%) is fairly typical behavior for August

• Over the past 18 years, delinquencies have fallen by 0.2% on average for the month, making August the most seasonally neutral month

• In contrast, September tends to see the largest seasonal upward pressure on delinquency rates of any month (+5.2% on average since 2000), so upward movement next month would not be surprising

The second graph shows 90-day defaults vs foreclosure starts:

• Foreclosure starts hit an 18-year low in August, but defaults have shown signs of upward movement in recent months

• While August’s 85K defaults were 15% below the prerecession (2000-2005) average for this time of year, default volume was up by 6% from the same time last year

• Defaults have been relatively flat year-over-year or up slightly in each of the past five months

• One contributing factor has been the severe early-2018 flooding in the Midwest, with defaults in the region rising by 10% from the year prior » August also saw defaults increase in the south (+8%) and the Northeast (+4.5%)

• Though default activity remains historically low, this is a trend worth watching

There is much more in the mortgage monitor.