by Calculated Risk on 4/08/2020 02:07:00 PM

From the Fed: Minutes of the Federal Open Market Committee, March 15, 2020. A few excerpts:

All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain. Many participants had repeatedly downgraded their outlook of late in response to the rapidly evolving situation. All saw U.S. economic activity as likely to decline in the coming quarter and viewed downside risks to the economic outlook as having increased significantly. Participants noted that the timing of the resumption of growth in the U.S. economy depended on the containment measures put in place, as well as the success of those measures, and on the responses of other policies, including fiscal policy.
...
Participants all agreed that the effects of the pandemic would weigh on economic activity in the near term and that the duration of this period of weakness was uncertain. They further concurred that the unpredictable effects of the coronavirus outbreak were a source of major downside risks to the economic outlook.

In their consideration of monetary policy at this meeting, most participants judged that it would be appropriate to lower the target range for the federal funds rate by 100 basis points, to 0 to 1/4 percent. In discussing the reasons for such a decision, these participants pointed to a likely decline in economic activity in the near term related to the effects of the coronavirus outbreak and the extremely large degree of uncertainty regarding how long and severe such a decline in activity would be. In light of the sharply increased downside risks to the economic outlook posed by the global coronavirus outbreak, these participants noted that risk-management considerations pointed toward a forceful monetary policy response, with the majority favoring a 100 basis point cut that would bring the target range to its effective lower bound (ELB). With regard to monetary policy beyond this meeting, these participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals.
emphasis added

by Calculated Risk on 4/08/2020 12:58:00 PM

This is mostly prior to the collapse in oil prices and the impact of COVID-19. Closed sales in March are for contracts that were mostly signed in January and February.

From the HAR: Strong sales momentum through mid-March helps offset COVID-19’s market impact later in the month

As COVID-19 ravages the physical and business health of the nation, its impact on the Houston real estate market only began to set in during the last week of March, and therefore caused little disruption to the month’s overall performance. The full effect of the pandemic is expected to become more apparent when the April housing numbers are tallied. ...

According to the latest monthly Market Update from the Houston Association of Realtors (HAR), 7,566 single-family homes sold in March compared to 6,995 a year earlier, accounting for an 8.2 percent increase and the ninth consecutive month of positive sales. ... Sales of all property types totaled 8,965, up 6.9 percent from March 2019.

“What’s about to happen to Houston real estate reminds me of Hurricane Harvey in that we are bracing for impact, but don’t yet know what the full extent on the market will be,” said HAR Chairman John Nugent with RE/MAX Space Center. “There are consumers out there for whom finding a home is critical, however, HAR has urged all Realtor members to conduct as much business as possible online, using technology such as virtual open houses, virtual tours and electronic signature documents, in the interest of protecting everyone’s health. What’s most important during this pandemic is for everyone to be responsible community stewards and heed the warnings of health experts and local officials,” added Nugent.
...
Total active listings, or the total number of available properties, rose 2.6 percent to 40,932.. … Single-family homes inventory recorded a 3.5-months supply in March, down from a 3.8-months supply a year earlier.
emphasis added

Sales in Houston set a record in 2019 and were off to a strong start in 2020. The impact of COVID-19, and the sharp decline in oil prices, will hit sales in Houston in the coming months.

by Calculated Risk on 4/08/2020 09:42:00 AM

Even before the negative impact from COVID-19, the employment report in March was going to be disappointing. This is because the better than normal weather boosted employment gains in both January and February, and there was going to be payback in March. The question is: how much?

The San Francisco Fed estimates Weather-Adjusted Change in Total Nonfarm Employment (monthly change, seasonally adjusted). They use local area weather to estimate the impact on employment. For March, the BLS reported 701 thousand jobs lost, the San Francisco Fed estimates that weather adjusted employment losses were 617 thousand.

This suggests weather payback (from previous months), would have reduced March employment by over 80 thousand - and the March report would have been disappointing even without the pandemic.

Given the current circumstances, this is mostly irrelevant.  However, if someone points to the gains in January and February, and claims that employment growth was picking up before COVID-19 - without adjusting for the weather - that would be inaccurate.

by Calculated Risk on 4/08/2020 07:00:00 AM

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

Mortgage applications decreased 17.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 3, 2020.

... The Refinance Index decreased 19 percent from the previous week and was 144 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 33 percent lower than the same week one year ago.
...
“Mortgage applications fell last week, as economic weakness and the surge in unemployment continues to weigh heavily on the housing market. Purchase activity declined again, with the index dropping to its lowest level since 2015 and now down 33 percent compared to a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “With much less liquidity and tighter credit in the jumbo market, average loan sizes declined, and mortgage rates for jumbo loans increased to a high last seen in January.”

Added Kan, “Refinance applications dropped 19 percent, reversing a 25 percent increase the week before. Given the ongoing rate volatility, along with the persistent lack of liquidity in certain sectors of the MBS market, we expect to see continued weekly swings in refinance activity.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.49 percent from 3.47 percent, with points decreasing to 0.28 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.

The refinance index has been very volatile recently depending on rates and liquidity.

Note the Fed has stepped up buying of MBS last month and that helped with liquidity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is DOWN 33% year-over-year.

It appears purchase activity is falling sharply.

Note: Red is a four-week average (blue is weekly).

by Calculated Risk on 4/07/2020 07:10:00 PM

CR Note: The mortgage purchase application survey will give us a hint about the housing market, and the FOMC minutes are for the key meeting of March 15th ('whatever it takes' meeting).

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

• At 2:00 PM: FOMC Minutes, Meeting of March 15, 2020

by Calculated Risk on 4/07/2020 05:56:00 PM

Note: the large increase Saturday in test results reported was due to California working through the backlog of pending tests.

Test-and-trace is a key criteria in starting to reopen the country.   My current guess is test-and-trace will require around 300,000 tests per day at first since the US is far behind the curve.  Some scientists believe we need around 800,000 tests per day.

Notes: Data for the previous couple of days is updated and revised, so graphs might change.

Also, I'm no longer including pending tests.  So this is just test results reported daily.

There were 137,367 test results reported over the last 24 hours.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 23% (red line).  The US needs enough tests to push  the percentage below 5% (probably much lower).

Test. Test. Test. Protect healthcare workers first!

by Calculated Risk on 4/07/2020 01:05:00 PM

This is an interesting way to look at the eventual recovery, from Josh Lehner at the Oregon Office of Economic Analysis: COVID-19: The Square Root Recovery?

The thinking is as follows.

The sudden stop of the economy sends us into a severe recession overnight. Once the health situation improves some, the curve flattens and caseloads peak, the restrictions begin to be lifted. This results in some initial bounce back in economic activity, although far from 100%. We may be able to got out to eat, or get a haircut again, or the like. These firms will staff back up to meet this demand, but is the rebound 1/3 of the losses? 1/2 the losses? We don’t know that answer today. ...

This initial bounce back likely takes the economy from near-depression level readings up to something resembling a severe or bad recession. From there the economy sees slow or moderate rates of growth until the health situation is under control.

Click on graph for larger image.

This graph is from Josh Lehner.

Finally, just to be clear, none of this is designed to be pitting the economy against public health. Research shows they are clearly connected and in past episodes, the economy is stronger in places that improve public health the most. As Bill Conerly said the other week, if you tell me the health outcomes, I can tell you the path of the economy. That remains true today.

by Calculated Risk on 4/07/2020 11:19:00 AM

Note: Most of what I proposed in early March was enacted. This includes Federal government adding to unemployment insurance (UI), expanding the coverage of UI, small business loans, free testing and care, and sending money to everyone (and much much more than I proposed).  That was a start.

Now is the time to address Phase 4 of Disaster Relief. But first, a key point: This is disaster relief, not "stimulus". Many politicians and reporters are used to using the term "stimulus" for government packages. We are NOT trying to stimulate the economy, we are filling in an economic hole.

The first goal of disaster relief is to fight the virus. This includes any and all support for our healthcare workers and first responders, building up the supply chain of critical items like Personal Protection Equipment (PPE), and building a robust test-and-trace program that is a key to reopening parts of the economy.

The second goal of disaster relief is to fill the economic hole caused by the disaster.   There has been a sudden stop in economic activity, however the financial world continues.  Some people are advocating suspending paying bills, such as rents, mortgages, insurance, credit card, bond payments, and other bills during the crisis.  This is a terrible idea. We don’t want to add a financial crisis, on top of an economic crisis, on top of a healthcare crisis. If we have a financial crisis too, it will be much hard to eventually reopen the economy.

We want to provide sufficient economic support during the crisis so that people can pay their bills. This should be the message from all politicians: Pay your bills.

For Phase 4, I'd suggest:

1. Another round of direct payments to households (send another $1,200 this month, and $1,200 next month).
2. Massive support for State and Local governments (Say $2,000 per person in each state).
3. Rent and mortgage assistance for individuals and small businesses.  If the above isn't enough for people to keep paying their bills, then have a program that will provide short term assistance to help pay the bills.

In addition, we need to plan for a resurgence of the virus in the Fall (as Dr. Fauci has warned about).   This includes building up PPE, having adequate masks for all citizens, supporting a robust test-and-trace program, and protecting our Democracy in the Fall.  This includes preparing (and funding) to have mail-in voting in all 50 states in November if needed.

by Calculated Risk on 4/07/2020 10:08:00 AM

Note: This is pre-crisis data.

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 6.9 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.9 million and 5.6 million, respectively. Within separations, the quits rate was unchanged at 2.3 percent and the layoffs and discharges rate was little changed at 1.2 percent. ...

In February, the number of quits was little changed at 3.5 million while the rate was unchanged at 2.3 percent. Total private quits were little changed while the quits level edged up for government (+15,000). Quits decreased in real estate and rental and leasing (-27,000).
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for February, the most recent employment report was for March.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in February to 6.882 million from 7.012 million in January.

The number of job openings (yellow) were down 2% year-over-year.

Quits were down 1% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Job openings were at a solid level, but had been declining recently.  Quits were mostly flat year-over-year.

However this was for February - the picture will change sharply in March and April.

by Calculated Risk on 4/07/2020 08:40:00 AM

Notes: This CoreLogic House Price Index report is for February. The recent Case-Shiller index release was for January. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports February Home Prices Increased by 4.1% Year Over Year

CoreLogic® ... today released the CoreLogic Home Price Index (HPI™) and HPI Forecast™ for February 2020, which shows home prices rose both year over year and month over month. Home prices increased nationally by 4.1% from February 2019. On a month-over-month basis, prices increased by 0.6% in February 2020. (January 2020 data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results each month.)

The CoreLogic HPI Forecast projects U.S. home prices to increase by 0.5% from February 2020 to March 2020. Homes that settle during March will largely reflect purchase contracts that were signed in January and February, before the coronavirus (COVID-19) outbreak. The CoreLogic HPI Forecast is a projection of home prices calculated using the CoreLogic HPI and other economic variables. (The HPI Forecast for February was produced with projections for economic variables available prior to mid-March and does not incorporate subsequent deterioration in the economy.)

“Before the onset of the pandemic, the quickening of home price growth during the first two months of 2020 highlighted the strength of purchase activity,” said Dr. Frank Nothaft, chief economist at CoreLogic. “In February, the national unemployment rate matched a 50-year low, mortgage rates fell to the lowest level in more than three years and for-sale inventory remained lean, all contributing to the pickup in value growth.”

“The nearly 10-year-old recovery of the U.S. housing market has run headlong into the panic and uncertainty from the global COVID-19 pandemic. In terms of home value trends, we are in uncharted territory as we battle the outbreak with measures that are generating a never-before-seen, rapid downshift in economic activity and employment. We expect that many homeowners will initially be somewhat cushioned by government programs, ultra-low interest rates or have adequate reserves to weather the storm. Over the second half of the year, we predict unemployment and other factors will become more pronounced, which will apply additional pressure on housing activity in the medium term.”, Frank Martell, President and CEO of CoreLogic
emphasis added

Click on graph for larger image in graph gallery.

This graph from CoreLogic shows the YoY change in the index.

From CoreLogic: "This graph shows a comparison of the national year-over-year percent change for the CoreLogic HPI and CoreLogic Case-Shiller Index from 2000 to present month with forecasts one year into the future. We note that both the CoreLogic HPI Single Family Combined tier and the CoreLogic Case-Shiller Index are posting positive, but moderating year-over-year percent changes, and forecasting gains for the next year."

CR Note: The impact of COVID-19 on house prices will probably not show up for several months. The report next month will be for March, and that is for contracts signed in January and February. The overall impact on house prices will depend on the duration of the crisis.