by Calculated Risk on 7/07/2013 09:00:00 PM

Monday:
• Early: The LPS May Mortgage Monitor report. This is a monthly report of mortgage delinquencies and other mortgage data.

• Early: Reis Q2 2013 Office Survey of rents and vacancy rates.

• At 3:00 PM ET, Consumer Credit for May from the Federal Reserve. The consensus is for credit to increase $13.0 billion in May.

Weekend:
• Schedule for Week of July 7th

Over in Europe from Reuters: Greece, foreign lenders close in on deal to unlock aid

Greece is likely to reach a deal with foreign lenders on its latest bailout review before a meeting of euro zone finance ministers on Monday to decide on further aid, EU and Greek officials said on Sunday.
...
Greece hopes euro zone finance ministers will free up its next 8.1 billion-euro ($10.4 billion) tranche of aid when they meet on Monday ...

The Asian markets are green tonight with the Nikkei up 1.1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 6 and DOW futures are up 53 (fair value).

Oil prices have increased recently with WTI futures at $103.91 per barrel and Brent at $108.00 per barrel. The spread between WTI and Brent has narrowed significantly.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices have fallen 15 cents per gallon over the last three weeks to almost $3.49 per gallon. Based on Brent prices and the calculator at Econbrowser, I expect gasoline prices to move up a 5 cents if oil prices stay steady.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 7/07/2013 03:49:00 PM

A week ago I posted a couple of graphs comparing House Prices and Mortgage Rates. The first graph used nominal house prices and the second graph used real house prices (adjusted for inflation).

In that post I noted that historically there has been no strong correlation between interest rates and home prices (I was agreeing with a quote from Douglas Duncan, chief economist at Fannie Mae).

As a caveat, I noted that a "key difference now compared to earlier periods, is that there is more investor buying. And investors will compare their returns on different investments - and rising rates will probably slow investor demand for real estate, even if they are all cash buyers."

Overall my conclusion was that other factors (like a stronger economy) have a bigger impact on house prices than changes in mortgage rates.

Today I looked at several previous periods of sharply rising mortgage rates as summarized in the table below.  (I looked for periods when rates increased significantly more than 100 bps in a short period.

During all of these periods the economy was growing as mortgage rates increased sharply.  In all of the periods nominal house prices increased, and only in 1994 did real prices decline (that was during the housing bust in several key states like California in the early to mid-90s).

My view is rising rates might slow price increases but not lead to a decline in prices (other than some seasonal declines).   As far as the housing recovery (residential investment such as housing starts and new home sales), I think rising mortgage rates will have a minimal impact.

House Prices During Periods with a Sharp Increase in Mortgage Rates
Date	Mortgage Rate1	Date	Mortgage Rate	Nominal House Price Change2	Real House Price Change3
May-83	12.63%	Jul-84	14.67%	6.6%	1.9%
Mar-87	9.04%	Oct-87	11.26%	5.2%	2.8%
Oct-93	6.83%	Dec-94	9.20%	1.2%	-1.6%
Apr-99	6.92%	May-00	8.52%	10.9%	7.5%
Apr-13	3.45%
1 Mortgage Rates are 30 year fixed from the Freddie Mac Primary Mortgage Market Survey® 2 House Prices are based on the CoreLogic House Price Index. 3 Real prices are adjusted for inflation.

by Calculated Risk on 7/07/2013 11:47:00 AM

Just two months ago I mentioned that lumber prices were nearing the housing bubble highs. Since then prices have declined sharply, with prices off about 25% from the highs in early May.

Some of the decline could be related to additional supply coming on the market, and some due to less buying from China (several sources are reporting that China has pulled back significantly on buying North American lumber).

On additional supply, a few months ago the WSJ had an article about some producers increasing supply:

Georgia-Pacific, the largest U.S. producer of plywood ... plans to invest about $400 million over the next three years to boost softwood plywood and lumber capacity by 20%.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices (not plywood): 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.

Lumber prices are now about 25% off the recent highs.

by Calculated Risk on 7/06/2013 07:02:00 PM

In April, I posted two graphs comparing changes in public and private sector payrolls during the Bush and Obama presidencies. Several readers asked if I could add Presidents Reagan and Clinton (I've also added the single term of President George H.W. Bush).  Below are updates through the June report.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a better comparison might be to look at the percentage change, but this gives an overall view of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s).  President George H.W. Bush only served one term, and President Obama has just started his second term. 

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble.  Mr. Obama (blue) took office during the financial crisis and great recession.  There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was very sluggish, and private employment was down 946,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 665,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,490,000 private sector jobs added.

Private sector employment increased by 20,864,000 under President Clinton (light blue) and 14,688,000 under President Reagan (yellow).

There were only 1,933,000 more private sector jobs at the end of Mr. Obama's first term.  A few months into Mr. Obama's second term, there are now 3,003,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1990, 2000, and 2010. 

The public sector grew during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,748,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 732,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

A big question is when the public sector layoffs will end.  It appears the cutbacks are mostly over at the state and local levels, but there are ongoing cutbacks at the Federal level.

by Calculated Risk on 7/06/2013 03:27:00 PM

The focus this week will be on the FOMC minutes for the June meeting (for further hints on QE3 tapering plans), and on the speech that follows a couple of hours later by Fed Chairman Ben Bernanke.

For prices, PPI for June will be released on Friday.

Also Reis will release their Q2 2013 Office and Apartment vacancy rate survey this week.

----- Monday, July 8th -----
Early: Reis Q2 2013 Office Survey of rents and vacancy rates.

3:00 PM ET: Consumer Credit for May from the Federal Reserve. The consensus is for credit to increase $13.0 billion in May.

----- Tuesday, July 9th -----
Early: Reis Q2 2013 Apartment Survey of rents and vacancy rates.

7:30 AM ET: NFIB Small Business Optimism Index for June. The consensus is for an increase to 94.7 from 94.4 in May.

10:00 AM: Job Openings and Labor Turnover Survey for May from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in April to 3.757 million, down from 3.875 million in March. The number of job openings (yellow) has generally been trending up, and openings are up 7% year-over-year compared to April 2012. 

Quits were up in April, and quits are up about 8% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

----- Wednesday, July 10th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for May. The consensus is for a 0.3% increase in inventories.

2:00 PM: FOMC Minutes for Meeting of June 18-19, 2013.

4:10 PM: Speech by Fed Chairman Ben Bernanke, A Century of U.S. Central Banking: Goals, Frameworks, Accountability, At the National Bureau of Economic Research Conference: The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future, Cambridge, Mass.

----- Thursday, July 11th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 337 thousand from 343 thousand last week.

----- Friday, July 12th -----
8:30 AM: Producer Price Index for June. The consensus is for a 0.5% increase in producer prices (0.2% increase in core).

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 84.1 unchanged from June.