by Calculated Risk on 2/28/2025 08:57:00 AM

Here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report this morning, both through January 2025.

CPI Shelter was up 4.4% year-over-year in January, down from 4.6% in December, and down from the cycle peak of 8.2% in March 2023.

Housing (PCE) was up 4.5% YoY in January, down from 4.7% in December and down from the cycle peak of 8.3% in April 2023.

Since asking rents are mostly flat year-over-year, these measures will slowly continue to decline over the next year as rents for existing tenants continue to increase.

The second graph shows PCE prices, Core PCE prices and Core ex-housing over the last 3 months (annualized):

Key measures are slightly above the Fed's target on a 3-month basis. Note: There is possibly some residual seasonality distorting PCE prices in Q1, especially in January.

3-month annualized change:

PCE Price Index: 2.9%
Core PCE Prices: 2.4%
Core minus Housing: 2.1%

by Calculated Risk on 2/28/2025 08:30:00 AM

The BEA released the Personal Income and Outlays, January 2025 report for January:

Personal income increased $221.9 billion (0.9 percent at a monthly rate) in January, according to estimates released today by the U.S. Bureau of Economic Analysis. Disposable personal income (DPI)—personal income less personal current taxes—increased $194.3 billion (0.9 percent) and personal consumption expenditures (PCE) decreased $30.7 billion (0.2 percent).

Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—decreased $52.7 billion in January. Personal saving was $1.01 trillion in January and the personal saving rate—personal saving as a percentage of disposable personal income—was 4.6 percent.
...
From the preceding month, the PCE price index for January increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
emphasis added

The January PCE price index increased 2.5 percent year-over-year (YoY), down from 2.6 percent YoY in December, and down from the recent peak of 7.0 percent in June 2022.

The PCE price index, excluding food and energy, increased 2.6 percent YoY, down from 2.9 percent in December, and down from the recent peak of 5.4 percent in February 2022.

The following graph shows real Personal Consumption Expenditures (PCE) through January 2025 (2017 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.

Personal income was well above expectations, and PCE was below expectations.

Inflation was close to expectations.

by Calculated Risk on 2/27/2025 07:23:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Friday:
• At 8:30 AM ET, Personal Income and Outlays for January. The consensus is for a 0.3% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.  PCE prices are expected to be up 2.5% YoY, and core PCE prices up 2.6% YoY.

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

by Calculated Risk on 2/27/2025 04:01:00 PM

What this means: On a weekly basis, Realtor.com reports the year-over-year change in active inventory and new listings. On a monthly basis, they report total inventory. For February, Realtor.com reported inventory was up 27.5% YoY, but still down 22.9% compared to the 2017 to 2019 same month levels. 

 Now - on a weekly basis - inventory is up 27.7% YoY.

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report: Weekly Housing Trends View—Data for Week Ending Feb. 22, 2025

• Active inventory increased, with for-sale homes 27.7% above year-ago levels

The number of homes for sale has now been higher than the previous year for 68 consecutive weeks. This continued rise in active inventory suggests that homes are not only being listed at a higher rate but are also lingering on the market longer. With more choices available, buyers can afford to be more selective, putting pressure on sellers to price competitively.

• New listings—a measure of sellers putting homes up for sale—increased 2.5%

Newly listed inventory grew for the seventh consecutive week, signaling that sellers are gaining confidence in listing their homes despite persistently high mortgage rates. While this week’s increase is slightly smaller than the previous week, the steady influx of fresh inventory offers buyers more options as the market heads into the spring season.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was up year-over-year for the 68th consecutive week.  

New listings have increased recently but remain below typical pre-pandemic levels.

by Calculated Risk on 2/27/2025 12:53:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 1.0% Below 2022 Peak

Excerpt:

It has been over 18 years since the housing bubble peak. In the December Case-Shiller house price index released this week, the seasonally adjusted National Index (SA), was reported as being 77% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 12% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 3% above the bubble peak.

People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $438,000 today adjusted for inflation (46% increase). That is why the second graph below is important - this shows "real" prices.

The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
...
The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).

In real terms (using CPI), the National index is 1.0% below the recent peak, and the Composite 20 index is 1.2% below the recent peak in 2022. The real National index and the Composite 20 index increased slightly in real terms in December.

It has now been 31 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs (see House Prices: 7 Years in Purgatory)

There is much more in the article!

by Calculated Risk on 2/27/2025 10:00:00 AM

From the NAR: Pending Home Sales Waned 4.6% in January

Pending home sales pulled back 4.6% in January according to the National Association of REALTORS®. The Midwest, South and West experienced month-over-month losses in transactions – with the most significant drop in the South – while the Northeast saw a modest gain. Year-over-year, contract signings lowered in all four U.S. regions, with the South seeing the greatest falloff.

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – fell 4.6% to 70.6 in January, an all-time low. (Last year's cyclical low point in July 2024 was revised from 70.2 to 71.2.) Year-over-year, pending transactions declined 5.2%. An index of 100 is equal to the level of contract activity in 2001.

"It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months," said NAR Chief Economist Lawrence Yun. "However, it's evident that elevated home prices and higher mortgage rates strained affordability."
...
The Northeast PHSI rose 0.3% from last month to 63.4, down 0.5% from January 2024. The Midwest index contracted 2.0% to 72.8 in January, down 2.7% from the previous year.

The South PHSI plunged 9.2% to 81.0 in January, down 8.8% from a year ago. The West in
emphasis added

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March.

by Calculated Risk on 2/27/2025 08:36:00 AM

From the BEA: Gross Domestic Product, 4th Quarter and Year 2024 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the fourth quarter of 2024 (October, November, and December), according to the second estimate released by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

The increase in real GDP in the fourth quarter primarily reflected increases in consumer spending and government spending that were partly offset by a decrease in investment. Imports, which are a subtraction in the calculation of GDP, decreased. ... Real GDP was revised up by less than 0.1 percentage point from the advance estimate released last month, primarily reflecting upward revisions to government spending and exports that were partly offset by downward revisions to consumer spending and investment.
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was unrevised at 4.2%. Residential investment was revised up from 5.3% to 5.4%.

by Calculated Risk on 2/27/2025 08:30:00 AM

The DOL reported:

In the week ending February 22, the advance figure for seasonally adjusted initial claims was 242,000, an increase of 22,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 219,000 to 220,000. The 4-week moving average was 224,000, an increase of 8,500 from the previous week's revised average. The previous week's average was revised up by 250 from 215,250 to 215,500.
emphasis added

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 increased to 224,000.

The previous week was revised up.

Weekly claims were well above the consensus forecast.

by Calculated Risk on 2/26/2025 07:45:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for an increase to 225 thousand from 219 thousand last week.

• At 8:30 AM, Gross Domestic Product, 4th Quarter and Year 2024 (Second Estimate) The consensus is that real GDP increased 2.3% annualized in Q4, unchanged from the advance estimate of 2.3%.

• At 8:30 AM, Durable Goods Orders for January from the Census Bureau. The consensus is for a 1.8% increase in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for January. The consensus is for a 1.2% decrease in the index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for February.

by Calculated Risk on 2/26/2025 04:57:00 PM

From housing economist Tom Lawler: Treasury Secretary Wrongly Says Fed Has Been “Big Seller” of Treasuries

In an interview last week, Treasury Secretary Bessent said that any plans by the Treasury to extend the maturity were “a long ways off.” One of the reasons cited by Secretary Bessent was the Federal Reserve’s current balance sheet runoff policy. Here is a quote from Bessent.

“The Fed’s balance sheet runoff increases the supply of Treasuries. It’s easier for me to extend duration when I’m not competing with another big seller.”

This statement appears to reflect Bessent’s complete misunderstanding of how the Federal Reserve has implemented its balance sheet runoff. Rather than being a “big seller” of intermediate and long term Treasury securities, the Fed has actually been a pretty big buyer of intermediate and long term Treasury securities even as it has lowered the overall size of its balance sheet.

The Federal Reserve owns a sizable amount of Treasuries, including a significant amount that matures in a short period of time. What the Fed has been doing is essentially targeting a desired decline in its overall balance sheet, and reinvesting a portion of the sizable amount of Treasuries maturing (and MBS principal repayments) into Treasury bills (short maturities) and Treasury notes and bonds (long maturities), TIPS (long maturities), and a de minimus amount of Floating Rate Notes in order to hit a targeted total balance. The replacement of some of the maturing notes and bonds (which by definition have very short maturities) into new longer-maturity notes and bonds extends the maturity of Federal Reserve Treasury note and bond holdings.

Here is a table showing the Fed’s System Open Market Account’s (SOMA) purchases, sales, and maturities (from the Fed’s quarterly financial statement)

As this table shows, even during the period where the Fed has reduced its balance sheet (a period some call “quantitative tightening,” though that is something of a misnomer), the Fed has been a significant net buyer of Treasury notes and bonds – and overall sales have been very small.

At the end of 2024, SOMA held $184.8 BILLION of Treasury notes and bonds (ex TIPS) that were not on its balance sheet at the end of 2023, with a weighted average maturity at the end of 2014 of 8.11 years, as well as 3.49 BILLION of TIPS not on its balance sheet a year earlier with a weighted average maturity of 10.52 years.

The Treasury’s purchases of Treasury notes and bond has continued this year. Below is a table showing SOMA’s purchases of Treasury notes and bonds at this year’s Treasury note and bond auctions.

The 3, 10, and 30 year SOMA purchases were especially noticeable, in that (1) SOMA owns a sizable 21.55% of the latest issued 3, 10, and 30 Treasury year securities, and (2) the sizable Fed purchases at these auctions was only about a week before Bessent’s incorrect comment that the Fed has been a “big seller” of Treasuries.

On January 31, 2025 the weighted average maturity of marketable Treasury securities outstanding was 5.88 years, while the weighted average maturity of SOMA Treasury securities holdings on February 19, 2025 was a staggering 8.97 years.

In terms of why I think the term “quantitative tightening” [is a misnomer] to describe the last few years, it’s useful to remember what quantitative easing entailed: not just expanding the size of the Fed’s balance sheet, but also purchasing huge amounts of long-term Treasuries (and agency MBS) that were in large part designed to lower long-term interest rates (including term premiums). A quantitative tightening designed to offset part of the quantitative easing would have involved selling long-term Treasuries (and MBS) in order to allow for term premiums to return to a more normal level. That, of course, is NOT what the Fed has done. Indeed, Fed actions since the so-called “QT” period began has actually resulted in a slight decline in the weighted average maturity of marketable Treasuries held by the public.

As such, while the Federal Reserve has in fact significantly reduced the size of its balance sheet, its overall strategy still seems to be that of keeping longer-term interest rates lower than they would other be. That, of course, is why I would not characterize the latest period of Federal Reserve balance sheet shrinkage as quantitative tightening, and it is most certainly the case that this recent period has in any way reversed the previous quantitative easing.

Note The Fed currently only owns about 3% of Treasury Bills outstanding but owns about 30% of Treasury notes and bonds (ex TIPS) with a maturity greater than 10 years.

Next Up: When the Fed decides to stop reducing its balance sheet, will the Fed’s purchases of longer-term Treasuries decline? (Hint: Read the latest FOMC minutes).