by Calculated Risk on 11/26/2019 04:33:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in October was 0.61%, unchanged from 0.61% in September. Freddie's rate is down from 0.71% in October 2018.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This matches the last three months as the lowest serious delinquency rate for Freddie Mac since November 2007.

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

Click on graph for larger image

I expect the delinquency rate to decline to a cycle bottom in the 0.4% to 0.6% range - so this is close to a bottom.

Note: Fannie Mae will report for October soon.

by Calculated Risk on 11/26/2019 02:44:00 PM

From the Richmond Fed: Manufacturing Activity Softened in November

Fifth District manufacturing activity softened in November, according to the most recent survey from the Richmond Fed. The composite index fell from 8 in October to −1 in November, weighed down by negative readings for shipments and new orders, while the third component — employment — declined but remained positive. Manufacturing firms also reported a drop in backlog of orders, but the indicator for local business conditions held fairly steady. Survey respondents were optimistic that conditions would improve in the coming months.

Survey results suggested modest employment growth and rising wages in November. However, firms continued to struggle to find workers with the necessary skills. Respondents expected this struggle to persist and employment and wages to continue to grow in the near future.
emphasis added

This was the last of the regional Fed surveys for November.

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

Based on these regional surveys, it seems likely the ISM manufacturing index for November will be weak again.

by Calculated Risk on 11/26/2019 12:26:00 PM

New home sales for October were reported at 733,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, combined. And sales for September were revised up to a new cycle high of 738,000 SAAR.

Sales were above 700 thousand SAAR in four of the last five months - the best five month stretch since 2007.

Annual sales in 2019 should be the best year for new home sales since 2007.

Earlier: New Home Sales at 733,000 Annual Rate in October, New Cycle High in September.

Click on graph for larger image.

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in October were up 31.6% year-over-year compared to October 2018.

Year-to-date (through October), sales are up 9.6% compared to the same period in 2018.

The comparisons for the last two months are easy, so sales should be double digits in 2019 compared to 2018 - a solid year for new home sales.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through October 2019. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

Even though distressed sales are down significantly, following the bust, new home builders focused on more expensive homes - so the gap closed slowly.

Now the gap is mostly closed, and I expect it to close a little more.   However, this assumes that the builders will offer some smaller, less expensive homes.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust - and is getting close to the historical ratio - and I expect this ratio will trend down a little more.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 11/26/2019 10:14:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 733 thousand.    Sales for September were revised up to a new cycle high of 738 thousand SAAR.

The previous three months were revised up, combined.

"Sales of new single‐family houses in October 2019 were at a seasonally adjusted annual rate of 733,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent below the revised September rate of 738,000, but is 31.6 percent above the October 2018 estimate of 557,000."
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the last several years, new home sales are still somewhat low historically.

The second graph shows New Home Months of Supply.

The months of supply increased in October to 5.3 months from 5.2 months in September.

The all time record was 12.1 months of supply in January 2009.

This is in the normal range (less than 6 months supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of October was 322,000. This represents a supply of 5.3 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still somewhat low, and the combined total of completed and under construction is close to normal.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In October 2019 (red column), 57 thousand new homes were sold (NSA). Last year, 43 thousand homes were sold in October.

The all time high for October was 105 thousand in 2005, and the all time low for October was 23 thousand in 2010.

This was well above expectations of 707 thousand sales SAAR, and sales in the three previous months were revised up, combined.  I'll have more later today.

by Calculated Risk on 11/26/2019 09:15:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for September ("September" is a 3 month average of July, August and September prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Cities in Sun Belt Region Lead In Annual Gains According To S&P CoreLogic Case-Shiller Index

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.2% annual gain in September, up from 3.1% in the previous month. The 10-City Composite annual increase came in at 1.5%, no change from the previous month. The 20-City Composite posted a 2.1% year-over-year gain, up from 2.0% in the previous month.

Phoenix, Charlotte and Tampa reported the highest year-over-year gains among the 20 cities. In September, Phoenix led the way with a 6.0% year-over-year price increase, followed by Charlotte with a 4.6% increase and Tampa with a 4.5% increase. Ten of the 20 cities reported greater price increases in the year ending September 2019 versus the year ending August 2019.
...
Before seasonal adjustment, the National Index posted a month-over-month increase of 0.1% in September. The 10-City Composite did not post any gains and the 20-City Composite posted a 0.1% increase for the month. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in September. The 10-City Composite posted a 0.2% increase and the 20-City Composite posted a 0.4% increase. In September, 12 of 20 cities reported increases before seasonal adjustment while 17 of 20 cities reported increases after seasonal adjustment.

"September’s report for the U.S. housing market is reassuring,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The national composite index rose 3.2% relative to year-ago levels, with smaller increases in our 10- and 20-city composites. Of the 20 cities in the composite, only one (San Francisco) saw a year-over-year price decline in September.

“After a long period of decelerating price increases, it’s notable that in September both the national and 20-city composite indices rose at a higher rate than in August, while the 10-city index’s September rise matched its August performance. It is, of course, too soon to say whether this month marks an end to the deceleration or is merely a pause in the longer-term trend."
emphasis added

I'll have more later.

by Calculated Risk on 11/25/2019 09:21:00 PM

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for September. The consensus is for a 3.2% year-over-year increase in the National index for September.

• At 9:00 AM, FHFA House Price Index for September 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 10:00 AM, New Home Sales for October from the Census Bureau. The consensus is for 707 thousand SAAR, up from 701 thousand in September.

• Also at 10:00 AM, Richmond Fed Survey of Manufacturing Activity for November. This is the last of the regional Fed manufacturing surveys for November.

by Calculated Risk on 11/25/2019 07:14:00 PM

From Fed Chair Jerome Powell: Building on the Gains from the Long Expansion Excerpt on inflation:

For many years as the economy recovered from the Great Recession, inflation averaged around 1.5 percent—below our 2 percent objective. We had long expected that inflation would gradually rise as the expansion continued, and, as I noted, both overall and core inflation ran at rates consistent with our goal for much of 2018. But this year, inflation is again running below 2 percent.

It is reasonable to ask why inflation running somewhat below 2 percent is a big deal. We have heard a lot about inflation at our Fed Listens events. People are concerned about the rising cost of medical care, of housing, and of college, but nobody seems to be complaining about overall inflation running below 2 percent. Even central bankers are not concerned about any particular minor fluctuation in inflation.

Around the world, however, we have seen that inflation running persistently below target can lead to an unhealthy dynamic in which inflation expectations drift down, pulling actual inflation further down. Lower inflation can, in turn, pull interest rates to ever-lower levels. The experience of Japan, and now the euro area, suggests that this dynamic is very difficult to reverse, and once under way, it can make it harder for a central bank to support its economy by further lowering interest rates. That is why it is essential that we at the Fed use our tools to make sure that we do not permit an unhealthy downward drift in inflation expectations and inflation. We are strongly committed to symmetrically and sustainably achieving our 2 percent inflation objective so that in making long-term plans, households and businesses can reasonably expect 2 percent inflation over time.

by Calculated Risk on 11/25/2019 05:04:00 PM

From Matthew Graham at MortgageNewsDaily: Mortgage Rates Higher to Start Holiday Week

Mortgage rates finally moved a bit higher today after avoiding such things for nearly 2 full weeks. The losses were mild today, but nonetheless take the average lender back in line with rates from November 15th. This is more of a commentary on the narrowness of the recent range than the scope of today's weakness. [Today's Most Prevalent Rates For Top Tier Scenarios 30YR FIXED - 3.75%]

Click on graph for larger image.

This graph from Mortgage News Daily shows mortgage rates since 2000.

This graph is interactive, and you could view mortgage rates back to the mid-1980s - click here for graph.

by Calculated Risk on 11/25/2019 10:47:00 AM

From the Dallas Fed: Texas Manufacturing Activity Weakens Slightly

Texas factory activity contracted slightly in November, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped into negative territory for the first time since mid-2016, falling seven points to -2.4.

Other measures of manufacturing activity were also negative in November, suggesting declines. The new orders index remained negative for a second month in a row, coming in at -3.0. The growth rate of orders index pushed further into negative territory, falling from -5.9 to -9.3. The capacity utilization and shipments indexes turned negative after three years in positive territory, falling to -5.3 and -4.5, respectively.

Perceptions of broader business conditions worsened slightly in November. The general business activity index remained negative but moved up from -5.1 to -1.3.
…
Labor market measures suggested stable employment levels and shorter workweeks this month. The employment index retreated from 11.0 to 0.9, with the near-zero reading suggesting little to no job growth on balance. Eighteen percent of firms noted net hiring, while 17 percent noted net layoffs. The hours worked index dipped from 4.7 to -4.3.
emphasis added

Another weak regional manufacturing survey. The last regional survey for November (Richmond) will be released tomorrow.

by Calculated Risk on 11/25/2019 08:49:00 AM

From Black Knight: Black Knight’s First Look: Strong Decline in October Mortgage Delinquencies; Refi Wave Pushes Prepayments to Highest Level in More than Six Years

• The national delinquency rate fell to 3.39% in October, a nearly 7% decline from last year, and within 0.03% of the record low set in May 2019

• Serious delinquencies fell by 10,000 from September, while the number of loans in active foreclosure edged up slightly (+3,000)

• Prepayment activity climbed another 16% in October to the highest level since May 2013

• Prepays are now up 134% year-over-year as refinancing homeowners continue to take advantage of low interest rates

• However, modest rises in 30-year rates in recent weeks – coupled with seasonal slowing in home sales – may dampen prepayment rates in coming months

According to Black Knight's First Look report for October, the percent of loans delinquent decreased in October compared to September, and decreased 6.9% year-over-year.

The percent of loans in the foreclosure process increased 1.0% in October and were down 6.2% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.39% in October, down from 3.53% in September.

The percent of loans in the foreclosure process increased slightly in to 0.48% from 0.48% in September.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Oct 2019	Sep 2019	Oct 2018	Oct 2017
Delinquent	3.39%	3.53%	3.64%	4.44%
In Foreclosure	0.48%	0.48%	0.52%	0.68%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	1,786,000	1,854,000	1,884,000	2,262,000
Number of properties in foreclosure pre-sale inventory:	255,000	252,000	267,000	348,000
Total Properties Delinquent or in foreclosure	2,041,000	2,106,000	2,152,000	2,610,000