by Calculated Risk on 11/27/2019 10:12:00 AM

The BEA released the Personal Income and Outlays report for October:

Personal income increased $3.3 billion (less than 0.1 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $12.6 billion (-0.1 percent) and personal consumption expenditures (PCE) increased $39.7 billion (0.3 percent).

Real DPI decreased 0.3 percent in October and Real PCE increased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The October PCE price index increased 1.3 percent year-over-year and the October PCE price index, excluding food and energy, increased 1.6 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through October 2019 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was below expectations,  and the increase in PCE was at expectations.

Note that core PCE inflation was below expectations.

by Calculated Risk on 11/27/2019 10:04:00 AM

From the NAR: Pending Home Sales Decline 1.7% in October

Pending home sales retreated in October, taking a slight step back after two prior months of increases, according to the National Association of Realtors®. The Northeast experienced a minor uptick last month, but the other three major U.S. regions reported declines in month-over-month contract activity. However, pending home sales were up nationally and up in all regions compared to a year ago.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, fell 1.7% to 106.7 in October. Year-over-year contract signings jumped 4.4%. An index of 100 is equal to the level of contract activity in 2001.
...
With the exception of the Northeast, all regional indices saw declines in October. The PHSI in the Northeast rose 1.9% to 95.7 in October, 3.0% higher than a year ago. In the Midwest, the index slid 2.7% to 101.4 last month, 1.8% higher than in October 2018.

Pending home sales in the South decreased 1.7% to an index of 125.3 in October, a 5.1% increase from last October. The index in the West declined 3.4% in October 2019 to 91.9, which is an increase of 7.5% from a year ago.
emphasis added

This was below expectations for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in November and December.

by Calculated Risk on 11/27/2019 08:41:00 AM

The DOL reported:

In the week ending November 23, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 227,000 to 228,000. The 4-week moving average was 219,750, a decrease of 1,500 from the previous week's revised average. The previous week's average was revised up by 250 from 221,000 to 221,250.
emphasis added

The previous week was revised up.

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 decreased to 219,750.

This was lower than the consensus forecast.

by Calculated Risk on 11/27/2019 08:36:00 AM

From the BEA: Gross Domestic Product, Third Quarter 2019 (Second Estimate); Corporate Profits, Third Quarter 2019 (Preliminary Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the third quarter of 2019, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 1.9 percent. With the second estimate for the third quarter, upward revisions to private inventory investment, nonresidential fixed investment, and personal consumption expenditures (PCE) were partially offset by a downward revision to state and local government spending.
emphasis added

PCE growth was unrevised at 2.9%. Residential investment was unrevised at 5.1%.

Here is a Comparison of Second and Advance Estimates.

by Calculated Risk on 11/27/2019 07:00:00 AM

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

Mortgage applications increased 1.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 22, 2019. This week’s results are being compared to the week of Thanksgiving 2018.

... The Refinance Index increased 4 percent from the previous week and was 314 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 55 percent higher than the same week one year ago.
...
“Mortgage rates stayed below 4 percent for the second straight week and borrowers responded positively, with mortgage applications rising 1.5 percent on the back of increases in both refinance and purchase activity,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinances have been strong this month, but we are starting to see the average pace slow compared to the peak experienced in August through October.”

Added Kan, “The annual increase in refinance and purchase activity was even more prominent in this report because Thanksgiving was a week earlier last year. However, with roughly five weeks of reporting data left in 2019, the mortgage market is on track for its best year for originations since 2007.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.97 percent from 3.99 percent, with points decreasing to 0.30 from 0.33 (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.

With lower rates, we saw a sharp increase in refinance activity, but mortgage rates would have to decline further to see a huge refinance boom.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 55% year-over-year unadjusted for the Thanksgiving holiday.

by Calculated Risk on 11/26/2019 07:46:00 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 initial weekly unemployment claims report will be released. The consensus is for 219,000 initial claims, down from 227,000 last week.

• At 8:30 AM, Gross Domestic Product, 3nd quarter 2018 (Second estimate). The consensus is that real GDP increased 1.9% annualized in Q3, unchanged from the advance estimate of GDP.

• At 8:30 AM, Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.7% decrease in durable goods orders.

• At 9:45 AM, Chicago Purchasing Managers Index for November.

• At 10:00 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:00 AM, Pending Home Sales Index for October. The consensus is for a 0.2% increase in the index.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

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.