by Calculated Risk on 6/16/2011 03:32:00 PM

From Prashant Gopal at Bloomberg: Homeowners Refinance to 15-Year Mortgages to Add Equity (ht Brian)

Cecelia Kirchman happily added $250 to her payment when she refinanced last August. ... [The Kirchmans] are among the growing number of “equity builders” -- creditworthy homeowners with steady jobs and enough cash to lock in near record-low interest rates and shorten the length of their loans ...

The portion of borrowers refinancing in January who took 15-year mortgages rose to 29 percent from 11 percent two years earlier ...

The share of cash-in refinancings reached a record 44 percent in the fourth quarter, according to data from Freddie Mac dating to 1985. (see Freddie Mac: Very low Cash-Out Refinance Activity for more stats) ...

“They are people who -- rather than waiting for home values to rise -- are taking matters into their own hands,” [Stuart Feldstein, president of SMR Research Corp] said. “They are building equity on their own.”

Ahhh ... building equity the old-fashioned way.

And that brings up the topic of "burning the mortgage" - a quaint old traditional that might make a come back ...

Here is a 1949 magazine ad (ht Brian).

The text reads: “Burning the Mortgage – a memorable event in the typical American home. The toast – with MILLER HIGH LIFE, of course”

The "typical American home"? I wonder what they would have thought of all the mortgage brokers a few years ago talking about home equity being "dead money"?

And from the Bloomberg article:

Switching to a 15-year term made sense for Kirchman, 55, who has no plans of moving anytime soon and is looking ahead to retirement. ... “I’ll be retiring in 10 to 12 years,” Kirchman said. “I don’t like the thought of still having that as an expense. I’d rather be taking trips.”

I hope she plans a nice mortgage burning party!

by Calculated Risk on 6/16/2011 12:11:00 PM

Also from the Housing Starts report this morning ...

Although the number of multi-family starts can vary significantly from month to month, apartment owners are seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and will be breaking ground this year. So I've been forecasting a pickup in multi-family starts this year.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

The rolling 12 month total for starts (blue line) is now at the same level as the rolling 12 month for completions (red line), but they are heading in opposite directions. Starts are picking up and completions are declining.

It is important to note that even if there is a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). The following table shows RI in Q1 2011:

Residential Investment, Q1 2011
	Dollars (millions) SAAR	Percent of RI
Single-family structures	$106,736	32.9%
Improvements	$151,622	46.8%
Multifamily structures	$12,734	3.9%
Brokers' commissions on sale of structures	$52,152	16.1%
Other	$888	0.3%

Usually investment in single-family structures is over half of RI, but obviously single-family is very depressed right now. A strong pickup in multi-family might only add a couple of percent to residential investment, but it also appears that home improvement is picking up a little. And some increase for both multi-family and home improvement is why I expect RI to make a positive contribution to both GDP and employment (residential construction) in 2011 for the first time since 2005.

Anecdotal evidence: I visited the local planning department yesterday, and I was told that permit activity has picked up over the last couple of months. I went upstairs to chat, and when I came back down the lobby was full - something they haven't seen for some time.

by Calculated Risk on 6/16/2011 10:00:00 AM

From the Philly Fed: June 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 3.9 in May to -7.7, its first negative reading since last September. [any reading below zero is contraction]. The demand for manufactured goods, as measured by the current new orders index, showed a similar decline: The index fell 13 points and recorded its first negative reading since last October. The current shipments index fell just 3 points but remained slightly positive. Firms reported declines in inventories and unfilled orders, and shorter delivery times.

Firms’ responses suggested little overall improvement in the labor market this month. The current employment index remained positive for the ninth consecutive month ...

This indicates contraction in June for the first time since last September. This was well below the consensus of 7.0.

Click on graph for larger image in graph gallery.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through June. The ISM and total Fed surveys are through May.

This early reading suggests the ISM index could be below 50 in June - is so, this would be the lowest reading since mid-2009.

Earlier:
• Housing Starts increase in May
• Weekly Initial Unemployment Claims decrease to 414,000

by Calculated Risk on 6/16/2011 08:58:00 AM

From the Census Bureau: Permits, Starts and Completions.

Housing Starts:
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Single-family housing starts in May were at a rate of 419,000; this is 3.7 percent (±9.5%)* above the revised April figure of 404,000. The May rate for units in buildings with five units or more was 134,000.

Building Permits:
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000.

Single-family authorizations in May were at a rate of 405,000; this is 2.5 percent (±1.1%) above the revised April figure of 395,000. Authorizations of units in buildings with five units or more were at a rate of 190,000 in May.

Click on graph for larger image in graph gallery.

Total housing starts were at 560 thousand (SAAR) in May, up 3.5% from the revised April rate of 541 thousand.

Single-family starts increased 3.7% to 419 thousand in May.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

This was above expectations of 547 thousand starts in May. Multi-family starts are beginning to pickup - although from a very low level - but single family starts are still moving sideways.

by Calculated Risk on 6/16/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending June 11, the advance figure for seasonally adjusted initial claims was 414,000, a decrease of 16,000 from the previous week's revised figure of 430,000. The 4-week moving average was 424,750, unchanged from the previous week's revised average of 424,750.

The following graph shows the 4-week moving average of weekly claims for the last 40 years.

Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged this week at 424,750.

This is the tenth straight week with initial claims above 400,000, and the 4-week average is at about the same the level as in January. This suggests the labor market weakness in May continued into early June.