by Calculated Risk on 4/17/2013 08:44:00 AM

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

The Refinance Index increased 5 percent from the previous week and is at its highest level since mid-January of 2013. The seasonally adjusted Purchase Index increased 4 percent from one week earlier is at its highest level since May of 2010 and the adjusted Conventional Purchase Index increased 3 percent to the highest level since October 2009.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.67 percent from 3.68 percent, with points increasing to 0.50 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.77 percent from 3.79 percent, with points decreasing to 0.27 from 0.36 (including the origination fee) for 80 percent LTV loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

There has been a sustained refinance boom for over a year.

However refinance activity will probably slow in 2013.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and the purchase index last week was at the highest level since May 2010. 

by Calculated Risk on 4/16/2013 08:23:00 PM

Another Spring slowdown?

From Tim Duy at EconomistsView Fed Watch: Another Spring Slowdown?

On net, I think the data is telling us a familiar story: The positives in the US economy are difficult to ignore. Housing starts are a very good indicator of the direction of the economy, and that direction appears to be up. But it doesn't pay to get too carried away with any one quarter's worth of data. Underlying growth has been slow and steady since the end of the recession, with positive quarters offset by negative quarters. And the impact of tighter fiscal policy looks likely to produce a similar trend this year. The light at the end of the tunnel, however, is that as the fiscal effect fades toward the end of this year and into next, activity could finally see a more of the sustained improvement we have been looking for.

But, at the moment, that sustained improvement looks ephemeral. That is the message of the bond market as yields plunged back to the 1.7 percent range since the beginning of the year. And the beat-down of commodity prices indicates nervousness on the global outlook as well. If I was a monetary policymaker, I would be paying attention, especially as the inflation numbers are not telling us that imminent tightening is necessary ...

From Ylan Q. Mui at the WaPo: Spring is a season of growth — but not for the U.S. economy

For the third year in a row, the nation’s economic recovery seems to be petering out just as temperatures start to go up. Hiring has dropped off. Shoppers are putting away their wallets. Government spending cuts are looming.

That has fueled predictions of an abrupt slowdown over the next few months. Economists are forecasting tepid growth of just over 1 percent during the second quarter of the year.
...
No one seems to have a good explanation for why the recovery has taken a nosedive around the same time each year. ... At first, economists wondered whether the problem was purely technical. The 2008 financial crisis upended mathematical models for how many people are hired and fired on a normal basis, resulting, they hypothesized, in artificial boosts in the fall that evaporated by spring.

But that explanation for the swoon was almost too easy — and certainly too optimistic. It turns out the trouble lay not in the data but in the real world.

In 2011, the problem was international. A tsunami in Japan coincided with a financial crisis in Europe that pushed Greece into default and almost caused a collapse of the continent’s common currency. Last year, economists blamed the weather. The mild winter, they said, siphoned away traditional springtime jobs.

This year, all fingers are pointed at Washington.

I think seasonal adjustments played a role in earlier slowdowns (as did the tsunami in Japan and the problems in Europe), but I think this slowdown is mostly related to fiscal tightening (mostly the payroll tax hike and the sequestration budget cuts). As Tim Duy notes, the fiscal effect should fade towards the end of this year.

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

• At 2:00 PM, Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. Analysts will look for signs of a slow down.

by Calculated Risk on 4/16/2013 04:33:00 PM

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

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

This is worth repeating: Imagine that the number of total existing home sales doesn't change or even declines 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 sharply, and conventional sales increase significantly. That would be a positive sign - and that is what is now happening.

I think the two keys for existing housing are active inventory and the number of conventional sales.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	13-Mar	12-Mar	13-Mar	12-Mar	13-Mar	12-Mar
Las Vegas	33.3%	26.6%	11.2%	40.7%	44.5%	67.3%
Reno	32.0%	34.0%	9.0%	32.0%	41.0%	66.0%
Phoenix	15.1%	25.7%	11.6%	21.1%	26.8%	46.8%
Sacramento	27.0%	29.0%	10.5%	30.7%	37.5%	59.7%
Minneapolis	9.3%	12.4%	28.6%	36.5%	37.9%	48.9%
Mid-Atlantic (MRIS)	11.4%	13.2%	10.7%	14.7%	22.1%	27.9%
Orlando	21.7%	33.1%	21.3%	26.0%	43.1%	59.2%
Hampton Roads					28.4%	33.5%
Northeast Florida					40.0%	43.2%
Chicago					43.0%	46.0%
Charlotte					12.3%	15.8%
Metro Detroit			35.4%	46.6%
Memphis*			26.8%	32.7%
*share of existing home sales, based on property records

by Calculated Risk on 4/16/2013 02:50:00 PM

A few comments:

• Total housing starts in March were up 46.7% from the March 2012 pace, although some of that increase was due to a surge in multi-family starts in March (Multi-family starts are volatile month-to-month). Single family starts were up 28.7%.  That is a very strong year-over-year increase.

• Even with this significant increase, housing starts are still very low. Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will probably increase 50% or so from the current level (1.036 million SAAR in March).

• There is some concern that multi-family starts are now too high.  That is possible, especially considering all the units currently under construction and not yet completed.  However single family starts are still near record lows, and most of the future increase in starts will probably be from single family starts.

• Residential investment and housing starts are usually the best leading indicator for economy.  Nothing is foolproof as a leading indicator, but this suggests the economy will continue to grow over the next couple of years.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) is lagging behind - but completions will follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family deliveries this year.  The level of multi-family starts over the last 12 months - almost to the level in late '90s and early 00's - suggests that future growth in starts will mostly come from single family starts.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts are moving up and completions are following.  Usually single family starts bounce back quickly after a recession, but not this time because of the large overhang of existing housing units. 

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 4/16/2013 11:18:00 AM

Note: Researchers at the Cleveland Fed recently wrote a post about the usefulness of median CPI: Forecasting Inflation? Target the Middle.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.1% annualized rate) in March. The 16% trimmed-mean Consumer Price Index rose 0.1% (0.7% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.2% (-2.2% annualized rate) in March. The CPI less food and energy increased 0.1% (1.3% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for March here. Motor fuel declined at a 40% annualized rate in March following the huge increase in February.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.7%, and the CPI less food and energy rose 1.9%. Core PCE is for January and increased 1.3% year-over-year.

On a monthly basis, median CPI was at 1.1% annualized, trimmed-mean CPI was at 0.7% annualized, and core CPI increased 1.3% annualized. Also core PCE for February increased 0.7% annualized.

With this low level of inflation and the current high level of unemployment, I expect the Fed will continue the large scale asset purchases (QE) at the current level.