by Calculated Risk on 11/12/2014 12:32:00 PM

It is difficult to forecast oil and gasoline prices due to world events - and the response of producers to price changes, but currently the EIA expects gasoline prices to average $2.94/gal in 2015 according to the Short Term Energy Outlook released today:

• North Sea Brent crude oil spot prices fell from $95/barrel (bbl) on October 1 to $84/bbl at the end of the month. The causes included weakening outlooks for global economic and oil demand growth, the return to the market of previously disrupted Libyan crude oil production, and continued growth in U.S. tight oil production. Brent crude oil spot prices averaged $87/bbl in October, the first month Brent prices have averaged below $90/bbl since November 2010. EIA projects that Brent crude oil prices will average $83/bbl in 2015, $18/bbl lower than forecast in last month's STEO. There is significant uncertainty over the crude oil price forecast because of the range of potential supply responses from the Organization of the Petroleum Exporting Countries (OPEC), particularly Saudi Arabia, and U.S. tight oil producers to the new lower oil price environment. ...

• Driven largely by falling crude oil prices, U.S. weekly regular gasoline retail prices averaged $2.99/gallon (gal) on November 3, the lowest level since December 20, 2010. U.S. regular gasoline retail prices are projected to continue to decline for the remainder of the year to an average of $2.80/gal in December, $0.33/gal lower than in last month's STEO. EIA expects U.S. regular gasoline retail prices, which averaged $3.51/gal in 2013, to average $3.39/gal in 2014 and $2.94/gal in 2015.
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Lower gasoline prices are a positive for the economy.  Right now gasoline prices are down to around $2.92 per gallon nationally according to the Gasbuddy.com.

The following graph is from Gasbuddy.com. Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 11/12/2014 09:38:00 AM

From the National Federation of Independent Business (NFIB): More owners plan to make capital expenditures, expect sales to increase

The NFIB Small Business Optimism Index crept back to its August level of 96.1 with a gain of 0.8 points led by a modest increase in the net percent of owners who plan to increase capital spending and more who expect higher sales in the next 3 months. ...

Job creation plans improved a point to a seasonally adjusted net 10 percent.
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And in another positive sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 12, down from 17 last year - and "taxes" at 21 and "regulations" are the top problems at 22 (taxes are usually reported as the top problem during good times).

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 96.1 in October from 95.3 in September.

Note: There is high percentage of real estate related businesses in the "small business" survey - and this has held down over all optimism.

by Calculated Risk on 11/12/2014 07:01:00 AM

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

Mortgage applications decreased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 7, 2014. ...

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.19 percent from 4.17 percent, with points increasing to 0.26 from 0.22 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
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Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 71% from the levels in May 2013.

Even with the recent slight small increase in activity - as people who purchased in the last year or so refinance - refinance activity is very low this year and 2014 will be the lowest since year 2000.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 11% from a year ago.

by Calculated Risk on 11/11/2014 06:29:00 PM

From the LA Times: West Coast port slowdown raises fears of dockworker strike or lockout

A six-year agreement covering nearly 20,000 dockworkers at 29 West Coast ports expired July 1. The sides have been negotiating since May. In 2002, amid talks for a previous contract, employers accused the union of go-slow tactics, then locked out dockworkers for 10 days, shutting down ports along the West Coast.

Some businesses are worried that ports could be shut down again. ... During a shutdown ... some workers — including 20,000 dockworkers — would sit idle and not collect a paycheck.

Most of the holiday related goods have already arrived, but a shutdown could have a short term impact on the economy.

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

• At 7:30 AM, the NFIB Small Business Optimism Index for October.

• At 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories for September. The consensus is for a 0.2% increase in inventories.

by Calculated Risk on 11/11/2014 01:41:00 PM

From housing economist Tom Lawler: D.R. Horton: Net Orders Jump as Increased Incentives Continued; Expects Big Increase in Unit Sales, Flat Home Prices Next Year

D.R. Horton reported that net home orders in the quarter ended September 30, 2014 totaled 7,135, up 38.3% from the comparable quarter of 2013. Net orders per community were up about 25% from a year ago. ... Home deliveries totaled 8,612 last quarter, up 25.4% from the comparable quarter of 2013, at an average sales price of $279,099, up 6.3% from a year ago. The company’s order backlog at the end of September was 9,888, up 20.5% from last September, at an average order price of $289,118, up 7.3% from a year ago.

On the net order front, orders were up the most in the company’s “East” division (YOY up 93%), which included orders from the housing inventory acquired from Crown Communities and where there are a “disproportionate” number of Express home communities (the relatively new product line for entry-level buyers, as most Express communities are in the Carolinas and Texas).

With respect to the YOY increase in the average price of homes closed last quarter (6.3%), company officials said that the average size of home closed last quarter was up 4% from a year earlier, while the average sales price per square foot was up just a little.

Company officials said that incentives last quarter were little changed from the previous quarter, implying that they were up significantly from a year ago. In order to increase the pace of absorptions, Horton increased significantly its sales incentive starting this spring, to what officials called “more normal long-term levels” from the “much lower than normal” levels of the past few years.

Horton said that at the end of September it owned or controlled 183,500 lots, up 1.4% from a year earlier but up 62.8% from September 2011. From the latter part of 2011 through the first half of 2013 Horton acquired a huge land/lot position, which “positioned” the company well for a housing recovery but which also has “pushed” the company to drive more home sales with more aggressive pricing than most of its competitors.

While a company official characterized overall housing demand as “relatively stable,” the company’s “broad geographic footprint and diversified product offerings across our three brands,” combined with its “sizable inventories of homes and finished lots” and more aggressive pricing, enabled Horton to achieve the highest market share in the company’s history.

For the fiscal year ending September 30, 2014 Horton home closings totaled 28,670 at an average sales price of about $272,200. The company said that in FY 2015 it “expects” home closings to be 34,500 to 37,500 (an increase of 20-30%), at an average sales price that is expected to be “little changed” from FY 2014.

CR Note: Below is a table of annual fiscal year sales (via Lawler).  The increase in 2010 was related to the ill-conceived housing tax credit.  Note that D.R. Horton increased sales 19% this fiscal year, even though total new home sales were only up a little.

Two key points: Incentives are up significantly (back to "normal" according to Horton) and prices are mostly flat.

Horton: Homes Closed during Fiscal Year Ending September 30
Fiscal Year	Sales	YoY % Change
2001	21,371	---
2002	29,761	39.3%
2003	35,934	20.7%
2004	43,567	21.2%
2005	51,172	17.5%
2006	53,099	3.8%
2007	41,370	-22.1%
2008	26,396	-36.2%
2009	16,703	-36.7%
2010	20,875	25.0%
2011	16,695	-20.0%
2012	18,890	13.1%
2013	24,155	27.9%
2014	28,670	18.7%