by Calculated Risk on 6/21/2012 09:54:00 PM

BuildFax Remodeling Index

Residential remodels authorized by building permits in the United States in April were at a seasonally-adjusted annual rate of 2,729,000. This is 2 percent above the revised March rate of 2,683,000 and is 12 percent above the April 2011 estimate of 2,447,000.

Seasonally-adjusted annual rates of remodeling across the country in April 2012 are estimated as follows: Northeast, 397,656 (up 5% from March and up 11% from April 2011); South, 1,102,000 (up 5% from March and up 14% from April 2011); Midwest, 484,000 (down 11% from March and up 7% from April 2011); West, 768,000 (up 2% from March and up 10% from April 2011).

"Remodeling continues to grow steadily in the U.S. on a seasonally-adjusted basis; more residential remodeling projects were started in April 2012 than in any of the prior six Aprils," said Joe Emison, Vice President of Research and Development at BuildFax

Three key components of residential investment are increasing: home improvement, new multi-family structures, and recently new single family structures.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 06:14:00 PM

Yesterday I argued that Fed Chairman Ben Bernanke had paved the way for QE3 as soon as August 1st, depending, as always, on incoming data. Others think the Fed will wait longer. Here are some different views:

From Merrill Lynch analysts (who all year have been predicting QE3 at the September FOMC meeting):

The Federal Reserve announced that it would extend Operation Twist through the end of the year, selling or rolling over $267bn of short-term holdings into longer-term Treasuries. We view this program as a down-payment on further easing: we still expect the Fed to launch QE3 in September and to push out its forward guidance to mid-2015 by August or September. Bernanke confirmed that the Fed stood ready to ease further if economic conditions warranted; under our forecast, deteriorating conditions will convince the Fed to ease again this fall.

From Goldman Sachs analysts (who thought there was a high probability QE3 would be announced at the meeting yesterday):

The FOMC's communication was dovish. First, changes to the committee's economic outlook were larger than expected, with significant downgrades to real GDP growth and employment. Second, the FOMC put in place a more explicit easing bias in the statement, saying that it "is prepared to take further action" should the recovery--and the job market in particular--continue to disappoint.

We believe further easing will be needed ... given our forecast for the economy--which remains below the Fed's own view--we also expect additional balance sheet expansion by early 2013.

However, the hurdle for additional balance sheet action in the next few months appears to be quite high. The fact that the FOMC took a "substantive" easing step today probably makes another easing move in the near term relatively unlikely.

And quite a few people wonder - given the Fed's own projections - why the Fed didn't do QE3 yesterday. From Paul Krugman:

The Fed has a dual mandate, employment and price stability. Its own projections show high unemployment persisting for years and years, inflation running below its target — and realistically its inflation projections are too high while its unemployment projections are too low. There is no rational argument I can see for not going all out with monetary stimulus.

But what we actually got was action that was pretty obviously calculated to be the absolute least the Fed could do without generating headlines saying “Fed ignores weak economy”.

CR Note: Perhaps an argument against a QE3 announcement on August 1st is there will not be much data released between now and the next FOMC meeting. For employment, the only major report will be the June employment report to be released on July 6th. Also the advance estimate for Q2 GDP will be released on July 27th. Still, if the data is weak, I expect the FOMC to provide additional accommodation at the August meeting.

by Calculated Risk on 6/21/2012 03:55:00 PM

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

The MBA reported yesterday that refinance activity increased again last week.

Earlier today from Freddie Mac: 30-Year Fixed-Rate Mortgage Averages 3.66 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates easing amid worsening economic indicators. Both the 30-year fixed and the 5-year ARM registered new average record lows.

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 21, 2012, down from last week when it averaged 3.71 percent. Last year at this time, the 30-year FRM averaged 4.50 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates are there! The 30 year conforming mortgage rates were at 4.23% in October 2010, so a 50 bps drop would be 3.73% - and rates hit 3.66% last week.

There was an increase this week in FHA streamlined refinances (due to lower premiums). And there has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 01:56:00 PM

Catching up ...

• From the Philly Fed: June 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading ...
...
The current employment index increased 3 points this month [to 1.8]. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.

Click on graph for larger image.

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.

The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level since last summer.

• Also this morning, the Markit Flash PMI came in below expectations at 52.9% (slower expansion).

• The Conference Board leading indicators increased 0.3% in May:

"Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum," said Ken Goldstein, economist at the Conference Board, a private research group. However, he added that ongoing U.S. and international challenges are making economic strengthening "difficult."

• The FHFA house price index showed further gains in April: FHFA House Price Index Up 0.8 Percent in April

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. ... For the 12 months ending in April, U.S. prices rose 3.0 percent.

by Calculated Risk on 6/21/2012 12:00:00 PM

The NAR reported inventory decreased to 2.49 million units in May, down 0.4% from the downwardly revised 2.50 million in April (revised down from 2.54 million). This is down 20.4% from May 2011, and down 2.6% from the inventory level in May 2005 (mid-2005 was when inventory started increasing sharply).

It is very likely that inventory will be below the comparable month in 2005 for the rest of the year. It is even possible that inventory has peaked for 2012 (or is at least very close to the peak).

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

The following graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

Click on graph for larger image.

This year (dark red for 2012) inventory is at the lowest level for the month of May since 2004, and inventory is below the level in May 2005 (not counting contingent sales). However inventory is still elevated using months-of-supply.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are above the sales for the 2008, 2009 and 2011 (2010 was slightly higher because of the tax credit). Sales are well below the bubble years of 2005 and 2006.

Also it appears distressed sales were down in May. From the NAR:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011.

This suggests non-distressed sales increased in May, and that is a positive sign for the housing market.

Earlier:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales graphs