by Calculated Risk on 12/01/2014 09:09:00 PM

Oh no! From the WSJ: Dodgy Home Appraisals Are Making a Comeback

An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files.

The firm reviewed more than 200,000 mortgages, parsing the homes’ appraised values and other information, including the properties’ sizes and similar homes sold in the areas at the times. The review was conducted using the firm’s software and staff appraisers.

Bankers, appraisers and federal officials in interviews said inflated appraisals are becoming more widespread as the recovery in the housing market cools.

During the bubble, the appraiser always seemed to "hit the number" - no matter how crazy.  I haven't seen anything like that in my area.

Tuesday:
• All day, Light vehicle sales for November. The consensus is for light vehicle sales to increase to 16.5 million SAAR in November from 16.3 million in October (Seasonally Adjusted Annual Rate).

• At 10:00 AM ET, Construction Spending for October. The consensus is for a 0.5% increase in construction spending.

by Calculated Risk on 12/01/2014 04:57:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Registered Gain in October

Driven by stronger sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in October. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.8 in October, up 1.8 percent from its September level. In addition, the RPI stood above 100 for the 20th consecutive month, which signifies expansion in the index of key industry indicators.

“The positive same-store sales and customer traffic results suggest that restaurants are the beneficiaries of falling gas prices, which were down $0.88 since the end of June,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Elevated food costs continue to top the list of challenges reported by restaurant operators, but overall they remain generally optimistic that business conditions will improve in the months ahead.”
emphasis added

Click on graph for larger image.

The index increased to 102.8 in October, up from 101.0 in September. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is a strong reading - and as Riehle noted - it appears restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 12/01/2014 01:36:00 PM

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. (note: the beginning of this post is from an earlier post on apartment supply and demand).

The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).

The demographics are still favorable for apartments, since  a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.

Click on graph for larger image.

This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.

The circled area shows the recent and projected increase for this group.

From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.

This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

The second graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.

by Calculated Risk on 12/01/2014 10:00:00 AM

The ISM manufacturing index suggests slightly slower expansion in November than in October. The PMI was at 58.7% in November, down from 59.0% in October. The employment index was at 54.9%, down from 55.5% in October, and the new orders index was at 66.0%, up from 65.8%.

From the Institute for Supply Management: November 2014 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in November for the 18th consecutive month, and the overall economy grew for the 66th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The November PMI® registered 58.7 percent, a decrease of 0.3 percentage point from October’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 66 percent, an increase of 0.2 percentage point from the reading of 65.8 percent in October. The Production Index registered 64.4 percent, 0.4 percentage point below the October reading of 64.8 percent. The Employment Index grew for the 17th consecutive month, registering 54.9 percent, a decrease of 0.6 percentage point below the October reading of 55.5 percent. Inventories of raw materials registered 51.5 percent, a decrease of 1 percentage point from the October reading of 52.5 percent. The Prices Index registered 44.5 percent, down 9 percentage points from the October reading of 53.5 percent, indicating lower raw materials prices in November relative to October. Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 58.2%, and indicates solid expansion in November.

by Calculated Risk on 11/30/2014 08:27:00 PM

From Professor Hamilton at Econbrowser: A glut of oil?

The world is awash in oil, I’m hearing. The problem is, it’s fairly expensive oil.
...
[C]onsider the United States, where production has grown 2 mb/d since 2004. More than 3 mb/d of that growth has come from fracking of oil trapped in tight geologic formations. Without tight oil, U.S. production would be down more than a million barrels a day over the last ten years and down 5-1/2 mb/d from its peak in 1970.
...
So here’s the basic picture. The current surplus of oil was brought about primarily by the success of unconventional oil production in North America, most new investments in which are not sustainable at current prices. Without that production, the price of oil could not remain at current levels. It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.

Monday:
• At 10:00 AM ET, the ISM Manufacturing Index for November. The consensus is for a decrease to 58.2 from 59.0 in October. The ISM manufacturing index indicated solid expansion in October at 59.0%. The employment index was at 55.5%, and the new orders index was at 65.8%.

Weekend:
• Schedule for Week of November 30th

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are down 4 and DOW futures are down 25 (fair value).

Oil prices were down sharply over the last week with WTI futures at $64.37 per barrel and Brent at $68.50 per barrel.  A year ago, WTI was at $93 and Brent was at $111 per barrel - so prices are down more 30% to 40% year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.77 per gallon (down about 50 cents from a year ago).  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