by Calculated Risk on 12/05/2012 01:52:00 PM

CR NOTE: This is a very long piece from economist Tom Lawler on long term house prices. I've written about this before, The upward slope of Real House Prices, and Tom digs much deeper into the data!

From Tom Lawler:

One of the most widely abused home price series used by folks is the long-term “real” home price chart constructed by Robert Shiller in his “Irrational Exuberance” book. While he and others have sometimes characterized his “time series” of “real” home prices back to 1890 as being a good representation of “constant quality” home prices, in fact that is not even remotely the case. There are especially serious issues with the “older” home price series used by Dr. Shiller, with the “most troubling” being that used for the 1890-1934 period. Indeed, the authors of the book from which the home price index used by Dr. Shiller came from actually argued that this index did NOT reflect the behavior of “constant-quality” home price (with evidence to support that argument), and suggested using a materially different home price index. More on this point later.

When Dr. Shiller decided to explore home prices, and especially what appeared to be a housing “bubble,” he was “most surprised” that there were no “good” data going back prior to 1987 – with “good” defined as the Case-Shiller HPI.. But he wanted to “show” last decade’s house price runup in a long-term historical context. So he decided to take various home price sources, and attempt to construct a “long run” home price index by “concatenating” time series based on these sources.

Not surprisingly, from 1987 to the present Shiller used the “national” S&P/Case-Shiller home price index, which is a market-value weighted (using values from the various decennial Censuses, which unfortunately are not available for 2010. This “national” index is estimated to cover just over 70% of the US housing market.

From 1975 to 1987 Shiller used the “national” FHFA (formerly OFHEO) home price index, which is a unit-weighted index (using annually-updated estimates of states’ share of the housing stock) based on repeat sales transactions AND appraisal information on refinances of homes backing mortgages owned or guaranteed by Fannie Mae or Freddie Mac. Aside from the obvious “dataset” limitations (GSE only) and use of appraisals, the “unit-weighting” can result in materially different behavior than “value-weighting” over time.

From 1953 to 1975 Shiller used the home price index from the BLS’ Consumer Price Index, which was based on a sample of new home purchases financed with FHA-insured loans. It probably is not the case, however, that new home prices financed with FHA-insured loans, which often represent a very small sample of total home purchases, reflected trends in “overall” home prices. Indeed, the BLS characterized the data base used as representing “a small and specialized segment of the housing market and presents BLS with increasingly serious estimation problems . Here is an excerpt from a BLS paper discussing the 1983 change in the treatment of shelter costs for homeowners in the CPI.

Read more »

by Calculated Risk on 12/05/2012 12:20:00 PM

LPS released their Mortgage Monitor report for October today. According to LPS, 7.03% of mortgages were delinquent in October, down from 7.40% in September, and down from 7.58% in October 2011.

LPS reports that 3.61% of mortgages were in the foreclosure process, down from 3.87% in September, and down from 4.30% in October 2011.

This gives a total of 10.64% delinquent or in foreclosure. It breaks down as:

• 1,957,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,543,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,800,000 loans in foreclosure process.

For a total of ​​5,300,000 loans delinquent or in foreclosure in October. This is down from 5,640,000 last month, and down from 6,111,000 in October 2011.

This following graph shows the total delinquent and in-foreclosure rates since 1995.

Click on graph for larger image.

From LPS:

The October Mortgage Monitor report released by Lender Processing Services (NYSE: LPS) showed a significant decline in foreclosure starts for the last two months – down 21.9 percent in October and almost 48 percent on a year-over-year basis – leading to a nearly 7 percent drop in overall foreclosure inventory. However, as LPS Applied Analytics Senior Vice President Herb Blecher explained, this fall-off in foreclosure starts is likely a temporary phenomenon, driven by new borrower notification requirements called for in the National Mortgage Settlement.

“LPS observed a drop-off in foreclosure starts in September that accelerated in October,” Blecher said. “This decline coincided with the implementation of new procedural changes outlined in the National Mortgage Settlement, which requires, among other things, that mortgage servicers provide written notice to borrowers 14 days prior to referring a delinquent loan to a foreclosure attorney. This has resulted in what is likely a temporary slowdown in foreclosure starts that we do not believe is indicative of a longer-term trend. However, we will continue to monitor this activity closely in the coming months.”

The second graph shows a break down of home sales by conventional, foreclosure and short sale.

As the housing market slowly recovers, we'd expect distressed sales to decline and conventional sales to increase. This appears to be starting.

There is much more in the mortgage monitor.

by Calculated Risk on 12/05/2012 10:00:00 AM

The November ISM Non-manufacturing index was at 54.7%, up from 54.2% in October. The employment index decreased in November to 50.3%, down from 54.9% in October. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: November 2012 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in November for the 35th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI™ registered 54.7 percent in November, 0.5 percentage point higher than the 54.2 percent registered in October. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 61.2 percent, which is 5.8 percentage points higher than the 55.4 percent reported in October, reflecting growth for the 40th consecutive month. The New Orders Index increased by 3.3 percentage points to 58.1 percent. The Employment Index decreased by 4.6 percentage points to 50.3 percent, indicating growth in employment for the fourth consecutive month but at a slower rate. The Prices Index decreased 8.6 percentage points to 57 percent, indicating prices increased at a slower rate in November when compared to October. According to the NMI™, 11 non-manufacturing industries reported growth in November. Respondents' comments are mixed; however, the majority of survey respondents reflect a cautious optimism about current economic conditions."

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 53.6% and indicates faster expansion in November than in October. The internals were mixed with the employment index down, but new orders up.

by Calculated Risk on 12/05/2012 08:24:00 AM

From ADP:

Private sector employment increased by 118,000 jobs from October to November, according to the November ADP National Employment Report®, which is produced by Automatic Data Processing, Inc. (ADP®) ... in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The October 2012 report, which reported job gains of 158,000, was revised down by 1,000 to 157,000 jobs.

Mark Zandi, chief economist of Moody’s Analytics, said, “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls. The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month. This is especially impressive given the uncertainty created by the Presidential election and the fast-approaching fiscal cliff. Businesses appear to be holding firm on their hiring and firing decisions.”

This was below the consensus forecast for 125,000 private sector jobs added in the ADP report. Note:  The BLS reports on Friday, and the consensus is for an increase of 80,000 payroll jobs in November, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report, but maybe the new method will work better. This is the 2nd month for the new method.

by Calculated Risk on 12/05/2012 07:01:00 AM

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

The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.52 percent, matching the lowest rate in the history of the survey, from 3.53 percent, with points increasing to 0.41 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index.

The purchase index had been mostly moving sideways over the last two years, however the purchase index has increased 9 of the last 11 weeks.  The 4-week average of the purchase index is at the highest level since 2010 (when the tax credit boosted application activity).

The 4-week average is up about 25% from the low in 2011.