by Calculated Risk on 12/22/2014 12:41:00 PM

• Once again housing economist Tom Lawler's forecast of 4.90 million SAAR was closer than the consensus (5.20 million) to the NAR reported sales (4.93 million).

• The most important number in the NAR report each month is inventory.   This morning the NAR reported that inventory was up 2.0% year-over-year in November.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data.  Also it isn't always clear what is included in "inventory" (some areas report "active" listings, others all listings including pending short sales).   Also, some sources are reporting more inventory, as an example, Zillow's data shows inventory was up 12% year-over-year in November.  That is a big difference!

The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data.

Click on graph for larger image.

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 9.1% from the bottom. On a seasonally adjusted basis, inventory was down 2.5% in November compared to October.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

And another key point: The NAR reported total sales were up 2.1% from November 2013, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed sales – foreclosures and short sales – were unchanged in November from October (9 percent) and remained in the single digits for the fourth month this year; they were 14 percent a year ago. Six percent of November sales were foreclosures and 3 percent were short sales.

Last year in November the NAR reported that 14% of sales were distressed sales.

A rough estimate: Sales in November 2013 were reported at 4.83 million SAAR with 14% distressed.  That gives 676 thousand distressed (annual rate), and 4.15 million equity / non-distressed.  In November 2014, sales were 4.93 million SAAR, with 9% distressed.  That gives 444 thousand distressed - a decline of about 34% from November 2013 - and 4.49 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 8%.. 

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in November (red column) were below the levels for November in 2012 and 2013.

Earlier:
• Existing Home Sales in November: 4.93 million SAAR, Inventory up 2.0% Year-over-year

by Calculated Risk on 12/22/2014 10:00:00 AM

The NAR reports: Existing-Home Sales Lose Momentum in November as Inventory Slightly Tightens

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 6.1 percent to a seasonally adjusted annual rate of 4.93 million in November from a downwardly-revised 5.25 million in October. Sales dropped to their lowest annual pace since May (4.91 million) but are above year-over-year levels (up 2.1 percent from last November) for the second straight month. ...

Total housing inventory at the end of November fell 6.7 percent to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace – unchanged from last month. Despite the tightening in supply, unsold inventory remains 2.0 percent higher than a year ago, when there were 2.05 million existing homes available for sale.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in November (4.93 million SAAR) were 6.1% lower than last month, and were 2.1% above the November 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.09 million in November from 2.24 million in October.   Headline inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 2.0% year-over-year in November compared to November 2013.  

Months of supply was at 5.1 months in November.

This was below expectations of sales of 5.20 million (but you were warned).  For existing home sales, the key number is inventory - and inventory is still low, but up year-over-year.    I'll have more later ...

by Calculated Risk on 12/22/2014 08:38:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth accelerated in November

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.73 in November from +0.31 in October. Two of the four broad categories of indicators that make up the index increased from October, and only one of the four categories made a negative contribution to the index in November.

The index’s three-month moving average, CFNAI-MA3, rose to +0.48 in November from +0.09 in October, reaching its highest level since May 2010. November’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests modest inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was above the historical trend in November (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 12/21/2014 07:01:00 PM

From James Hamilton at Econbrowser: Do falling oil prices raise the threat of deflation?

If gasoline prices stay where they are and if we buy the same number of gallons of gasoline this year as last, that leaves us with an additional $160 billion to spend over the course of the year on other items. If we restate the total savings for U.S. consumers and businesses in terms of the 116 million U.S. households, that works out to almost $1400 per household.

It’s a particularly big deal for the lower-income households, who spend a much higher fraction of their income on energy.

Historically consumers have responded to windfalls like this by becoming more open to the big-ticket purchases that play a huge role in cyclical economic swings.

Monday:
• At 8:30 AM ET, the Chicago Fed National Activity Index for November. This is a composite index of other data.

• At 10:00 AM, the Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for sales of 5.20 million on seasonally adjusted annual rate (SAAR) basis. Sales in October were at a 5.26 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.90 million SAAR.

Weekend:
• Schedule for Week of December 21st

• Existing Home Sales: A Likely "Miss"

From CNBC: Pre-Market Data and Bloomberg futures.

Oil prices were up over the last week with WTI futures at $57.13 per barrel and Brent at $61.38 per barrel.  A year ago, WTI was at $99, and Brent was at $111 - so prices are down 42% and 45% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.41 per gallon (down about 80 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

by Calculated Risk on 12/21/2014 09:59:00 AM

To understand what the general public is hearing about oil, I watched a Yahoo video yesterday with Katie Couric explaining the decline in oil prices.

In general the piece was very good. Couric started by explaining that the decline in oil prices could be explained in two words: Supply and Demand.  She discussed reasons for more supply and softening demand.

Note: from Professor Hamilton "[In October] I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy."

I'd add to the discussion that the short run supply and demand curves are both very steep for oil, so small changes in supply and / or demand can cause a large change in price (see A Comment on Oil Prices).

But then Couric mentioned a myth I've heard several times recently. She said:

In fact, [the U.S.] is now the world’s largest producer of petroleum, and for the last two years, it has been selling more to other countries than it’s been buying. Who knew?

"Who knew?"  No one, because it is not true. Yes, the U.S. is the largest producer this year (ahead of Saudi Arabia and Russia), but the U.S. is NOT "selling more to other countries than it's been buying".

The source of this error is that the U.S. is a net exporter of refined petroleum products, such as refined gasoline. Here is the EIA data on Weekly Imports & Exports of crude oil and petroleum products.  The U.S. is importing around 9 million barrels per day of crude oil and products, and exporting around 4 million per day (mostly refined products). The U.S. is a large net importer!

Note: Here is some data on natural gas (the U.S. is net importer).

Another data source is the monthly trade balance report from the Department of Commerce that shows about a net petroleum trade deficit of about $15 to $20 billion per month this year. The good news is the petroleum contribution to the trade deficit has been declining, but it is still very large.

Couric was correct about supply and demand, but it is important to note the U.S. is still a large importer of oil.