by Calculated Risk on 2/13/2013 10:04:00 AM

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

The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier.
...
The refinance share of mortgage activity of total applications was unchanged at 78 percent from the previous week. The HARP share of refinance applications was unchanged from last week at 28 percent. The adjustable-rate mortgage (ARM) share of activity increased to 4 percent of total applications.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.75 percent, the highest rate since September 2012, from 3.73 percent, with points unchanged at 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The first graph shows the refinance index.

The refinance activity is down over the last three weeks, but activity is still very high - and has remained high for over a year.

There has been a sustained refinance boom, and 78 percent of all mortgage applications are for refinancing.

The second graph shows the MBA mortgage purchase index. The purchase index was off last week - and is still very low, but the index has generally been trending up over the last six months.

This index will probably continue to increase as conventional home purchase activity increases.

by Calculated Risk on 2/13/2013 08:48:00 AM

On a monthly basis, retail sales increased 0.1% from December to January (seasonally adjusted), and sales were up 4.7% from January 2012. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $416.6 billion, an increase of 0.1 percent from the previous month and 4.4 percent above January 2012. ... The November to December 2012 percent change was unrevised from +0.5 percent.

Click on graph for larger image.

Sales for December were unrevised at a 0.5% gain.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 25.7% from the bottom, and now 9.9% above the pre-recession peak (not inflation adjusted)


The second graph shows the same data, but just since 2006 (to show the recent changes).

 Retail sales ex-autos increased 0.2%.

Excluding gasoline, retail sales are up 22.8% from the bottom, and now 10.3% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.8% on a YoY basis (4.4% for all retail sales).

This was at the consensus forecast of a 0.1% increase, and might indicate some slowdown in retail spending growth related to the payroll tax increase. 

by Calculated Risk on 2/12/2013 08:44:00 PM

On the deficit, from Jed Graham at investors.com:

Here's a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it's falling now without a coincident recession.

To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn't. Either way, the two-year deficit reduction — equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not — would stand far above any other fiscal tightening since World War II.

Until the aftermath of the Great Recession, there were only three such periods in which the deficit shrank by a cumulative 2% of GDP or more. The 1960-61 and 1969-70 episodes both helped bring about a recession.

This fits with the graph I posted last week:

Click on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the Congressional Budget Office (CBO).

The CBO deficit estimates are even lower than my projections.

After 2015, the deficit will start to increase again according to the CBO, but as I've noted before, we really don't want to reduce the deficit much faster than this path over the next few years, because that will be too much of a drag on the economy. 

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

• At 8:30 AM ET, Retail sales for January will be released. The consensus is for retail sales to increase 0.1% in January, and to increase 0.2% ex-autos.

• 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report for December will be released. The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 2/12/2013 03:40:00 PM

Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in January. 

Look at the right two columns in the table below (Total "Distressed" Share for Jan 2013 compared to Jan 2012). In every area that reports distressed sales, the share of distressed sales is down year-over-year - and down significantly in most areas. 

Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for Jan 2013 to Jan 2012. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by a new foreclosure law). 

Also there has been a shift from foreclosures to short sales. In most areas, short sales now out number foreclosures (Minneapolis is an exception).

I think this is important: Imagine that the number of total existing home sales doesn't change over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines 20%, and conventional sales increase to make up the difference. That would be a positive sign - and that is what appears to be happening.

An example would be Sacramento (I posted data on Sacramento yesterday).  In Sacramento, total sales were down 9% in Jan 2013 compared to Jan 2012, but conventional sales were up 51%!  I'd say that market is still unhealthy, but recovering.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	13-Jan	12-Jan	13-Jan	12-Jan	13-Jan	12-Jan
Las Vegas	36.2%	28.1%	12.5%	45.5%	48.7%	73.6%
Reno	41.0%	37.0%	10.0%	40.0%	51.0%	77.0%
Phoenix	17.6%	29.8%	16.2%	27.9%	33.8%	57.7%
Sacramento	30.3%	32.1%	14.2%	34.5%	44.5%	66.6%
Minneapolis	10.6%	16.2%	32.3%	39.0%	42.9%	55.2%
Mid-Atlantic (MRIS)	13.1%	16.4%	12.7%	16.9%	25.8%	33.3%
Hampton Roads					34.9%	37.2%
Charlotte					18.1%	21.0%
Metro Detroit			36.3%	54.5%
Memphis*			25.9%	36.6%
*share of existing home sales, based on property records

by Calculated Risk on 2/12/2013 12:24:00 PM

A key economic question this year is how many construction jobs will be added. Here are a few excerpts from analysis Kris Dawsey and Hui Shan at Goldman Sachs: Housing Sector Jobs Poised for a Comeback

Although many indicators of housing activity improved during 2012, employment in the sector remains close to post-bubble lows. Looking only at residential construction jobs, employment declined by 1.5 million (-42%) from its peak in 2006 to its recent trough in early 2011 and edged up only a modest 100 thousand since then. However, direct residential construction employment is only a part of all residential investment-related employment. Adding in housing-related employment in manufacturing, wholesale trade, retailing, and finance & real estate, employment dropped by 2.8 million (-31%) from its peak, and gained a bit less than 300 thousand from its trough to the present ...

[R]eal residential investment declined somewhat more sharply than housing-related employment in the downturn, resulting in a decline in real value added per residential investment-related worker, according to our proxy measure, from more than $80,000 in 2006 to a bit less than $60,000 in Q4:2012, in chained 2005 dollars. This pattern of declining productivity during a downturn is called "labor hoarding" by economists (although labor hoarding is probably not what most people think of during a period of sharp job cuts) and reflects businesses' reluctance to fire workers at a rate commensurate with the decline in their sales.

The flip side of this phenomenon is more sluggish employment growth than would otherwise be the case once business activity turns around. On top of the only modest turnaround in activity, this secondary effect also argues for only a modest rebound in residential investment-related employment early on in the recovery. However, this effect may shortly be coming to an end. Hours per worker in the construction industry now exceed pre-crisis highs, suggesting that room to increase output on the "intensive margin" (i.e. more hours per worker) is diminishing, and that pushing on the "extensive margin" (hiring more workers) will likely account for a larger share of future increases in residential investment output.
...
Given that we expect real residential investment to continue growing at a roughly stable 10%-15% rate in 2013 and 2014, and that the effects of labor hoarding should be dissipating, what is our forecast for residential investment-related employment growth over the coming several years? In order to answer this question, we estimated two different econometric models: (1) an error correction model of national-level real residential investment and residential investment-related employment, and (2) a state-level panel analysis of the relationship between construction activity and employment. Both models suggest an increase in the rate of housing-related employment growth in 2013 and 2014 relative to 2012, probably to a rate around 25 to 30k per month.
emphasis added

So their analysis suggests construction companies have been increasing hours worked for current employees, but now they need to hire more workers.

Earlier articles on construction employment:

• From Michelle Meyer at Merrill Lynch: Construction Coming Back

• From Jed Kolko at Trulia: Here are the “Missing” Construction Jobs

• From Professor Tim Duy at EconomistsView: Employment Report Nothing If Not Consistent