by Calculated Risk on 6/18/2013 09:35:00 PM

More support for Dr. Janet Yellen to replace Fed Chairman Ben Bernanke next January. I supported Yellen in 2009, and I think she would be an excellent choice.

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

• During the day, the AIA's Architecture Billings Index for May will be released (a leading indicator for commercial real estate).

• At 2:00 PM, the FOMC statement will be released. No change to interest rates or QE purchases is expected at this meeting.

• Also at 2:00 PM, the FOMC economic projections will be released. Here is a projections preview including a table of previous projections.

• At 2:30 PM, Fed Chairman Ben Bernanke holds a press briefing following the FOMC announcement.

by Calculated Risk on 6/18/2013 05:26:00 PM

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

Look at the two columns in the table for Total "Distressed" Share. In almost 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. 

Also there has been a decline in foreclosure sales in all of these cities.  Also there has been a shift from foreclosures to short sales. In all of these areas - except Minneapolis, and the California Bay Area - short sales now out number foreclosures.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	May-13	May-12	May-13	May-12	May-13	May-12	Apr-13	Apr-12
Las Vegas	31.8%	32.6%	10.3%	34.7%	42.1%	67.3%	57.9%	54.4%
Reno	27.0%	39.0%	7.0%	22.0%	34.0%	61.0%
Phoenix	12.3%	26.6%	9.7%	16.9%	22.0%	43.4%	38.9%	46.3%
Sacramento	22.5%	30.1%	7.5%	28.1%	30.0%	58.2%	33.6%	31.5%
Minneapolis	6.8%	10.6%	20.1%	28.8%	26.9%	39.4%	18.7%	20.1%
Mid-Atlantic (MRIS)	8.2%	11.8%	7.2%	10.2%	15.5%	22.1%	16.7%	17.2%
Orlando	21.7%	27.6%	18.9%	25.0%	40.6%	52.6%	53.5%	51.6%
California (DQ)*	17.7%	23.7%	11.4%	28.5%	29.1%	52.2%
Bay Area CA (DQ)*	7.3%	21.4%	13.9%	21.2%	21.2%	42.6%	27.6%	28.3%
So. California (DQ)*	17.7%	24.3%	10.8%	26.9%	28.5%	51.2%	31.9%	32.1%
Hampton Roads					26.3%	26.3%
Northeast Florida					36.6%	42.9%
Chicago					33.0%	36.0%
Houston			9.4%	17.8%
Memphis*			21.5%	30.5%
Birmingham AL			21.0%	27.3%
*share of existing home sales, based on property records

by Calculated Risk on 6/18/2013 02:11:00 PM

A few comments:

• Overall the housing starts report was a little disappointing with total starts at a 914 thousand rate on a seasonally adjusted annual rate basis (SAAR) in May. This was below the consensus forecast of 950 thousand SAAR.

• However starts are up significantly from the same period last year. Over the first five months of 2013, multi-family starts are up close to 40% from the same period in 2012, and single family starts are up 24%. Those are significant increases in activity. Based on permits and the June homebuilder confidence survey, I expect starts will increase further in June.

• Even with this significant year-over-year 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. This suggests significantly more growth in housing starts over the next few 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) are lagging behind. It is interesting that completions have lagged so far behind starts, and this suggests completions will increase significantly later this year (completions lag starts by about 12 months).

There will be a significant increase in multi-family deliveries this year.  However 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 6/18/2013 11:53:00 AM

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 0.2% (2.0% annualized rate) in May. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.6% 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 rose 0.1% (1.8% annualized rate) in May. The CPI less food and energy increased 0.2% (2.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for May here. Fuel oil declined at a 28% annualized rate in May.

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 1.7%. Core PCE is for April and increased just over 1.0% year-over-year.

On a monthly basis, median CPI was at 2.0% annualized, trimmed-mean CPI was at 1.6% annualized, and core CPI increased 2.0% annualized. Also core PCE for April increased 0.1% annualized.

This below target level of inflation will be a key topic at the FOMC meeting today and tomorrow.  

by Calculated Risk on 6/18/2013 10:31:00 AM

The Federal Reserve released the Q1 2013 Household Debt Service and Financial Obligations Ratios yesterday. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
...
The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only a rough approximation of the current debt service ratio faced by households. Nonetheless, this rough approximation may be useful if, by using the same method and data series over time, it generates a time series that captures the important changes in household debt service payments.

Click on graph for larger image.

The graph shows the DSR for both renters and homeowners (red), and the homeowner financial obligations ratio for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased slightly in Q1, and is just above the record low set last quarter thanks to very low interest rates. The homeowner's financial obligation ratio for consumer debt also increased slightly in Q1, and is back to levels last seen in early 1995.

Even the homeowner's financial obligation ratio for mortgages (blue) is down to 1990s levels.  This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to 1998 (and 1981) levels.