by Calculated Risk on 12/27/2014 08:07:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 - up 13.5% and 11.9% respectively - but RI was only up 1.6% through Q3 2014.   Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2015?  How about housing starts and new home sales in 2015?

A year ago, several builders told me they were optimistic for 2014 (yes, builders are almost always optimistic), and they said the 2013 problem of not enough finished lots was mostly resolved.   Still 2014 was a disappointing year with new home sales up slightly and housing starts only up about 8% (single family up 4%).  There were a number of reasons for the weak year: a severe winter, higher mortgage rates at the beginning of the year, ongoing competition from distressed sales (although that is declining), and - the main reason - higher price points (the builders really increased prices in 2013).

Once again the builders are telling me 2015 will be a good year and that the lot issue is mostly resolved ... I'm a little more skeptical this year! Also there might be some weakness in oil producing states in 2015.  Still I expect growth for both starts and new home sales in 2015.

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2014.

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.  However RI only increased slightly in 2014.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2015.

The second graph shows total and single family housing starts through November 2014.

Housing starts are on pace to increase close to 8% in 2014. And even after the significant increase over the last three years, the approximately 997 thousand housing starts in 2014 will still be the 7th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the six lowest years were 2008 through 2013).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 50% over the next few years from the 2014 level.

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
2013	924.9	18.5%	617.6	15.4%
20141	997.0	7.8%	645.0	4.4%
12014 estimated

The third graph shows New Home Sales since 1963 through November 2014. The dashed line is the current sales rate.

New home sales were up less than 1% in 2014 at around 433 thousand, following increases of 20.3% in 2012, and 16.6% in 2013.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2015.    And there will be some weakness in oil producing states.

Here are some recent forecasts for housing in 2014.  My guess is growth of around 8% to 12% for new home sales, and about the same percentage growth for housing starts.  Also I think the mix between multi-family and single family starts might shift a little more towards single family in 2015.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/27/2014 11:01:00 AM

The key reports this week are the December ISM manufacturing survey on Friday, and the Case-Shiller house price index on Tuesday.

Happy New Year to All!

----- Monday, December 29th -----
10:30 AM: Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

----- Tuesday, December 30th -----
9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the September 2014 report (the Composite 20 was started in January 2000).

The consensus is for a 4.9% year-over-year increase in the Composite 20 index for October.  The Zillow forecast is for the National Index to increase 4.8% year-over-year in October.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 93.0 from 88.7.

----- Wednesday, December 31st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 286 thousand from 280 thousand.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a reading of 59.0, down from 60.8 in November.

10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

----- Thursday, January 1st -----
All US markets will be closed in observance of New Year's Day Holiday.

----- Friday, January 2nd -----
10:00 AM: ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November.

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

The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

10:00 AM: Construction Spending for November. The consensus is for a 0.5% increase in construction spending.

by Calculated Risk on 12/26/2014 09:24:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Dec 26, 2014.

Changes and comments from surferdude808:

The FDIC did not release an update on its enforcement action activities through November this week. We had anticipated the release as the FDIC's issuance pattern is on the last Friday of the month. However, President Obama provided federal workers an additional day off given that Christmas fell on a Thursday. So it looks like the FDUC will issue the release one day next week. Otherwise, there are no changes to report to the Unofficial Problem Bank List. Thus, the list ends the month and year holding 401 institutions with assets of $125.1 billion. A year ago, the list held 619 institutions with assets of $205.8 billion. During December 2014, the list declined by a net seven institutions after nine action terminations, one failure, one merger, and four additions. However, assets during the month rose by $405 million, which is the first monthly increase since September 2012. The asset increase ends a streak of 26 consecutive months of lower assets.

Given no changes this week, we decided to bring the transition matrix a week earlier than planned. For full details, see the accompanying table and a graphic depicting trends in how institutions have arrived and departed the list. Since publication of the Unofficial Problem Bank List started in August 2009, a total of 1,684 institutions have appeared on the list. Since year-end 2012, new entrants have slowed as 83 institutions have been added since then while 520 institutions have been removed. The pace of action terminations moved slightly higher in the latest quarter from the pace latest quarter. There has been a notable slowdown over the past six months (9.5 terminations per month average) compared with pace in the preceding 12 months (20 terminations per month average). Granted the list count is lower, but the per capita action termination rate of has slowed from 9.7 percent per quarter to 6.4 percent per quarter. At the start of the fourth quarter, there were 432 institution on the list with 30 institutions being removed because of action termination.

At the end of the fourth quarter, only 401 or 23.8 percent of the banks that have been on the list at some point remain. Action terminations of 676 account for about 53 percent of the 1,283 institutions removed. Although failures have slowed over the past two years, they do account for a significant number of institutions that have been removed from the list. Since publication, 387 of the institutions that have appeared on the list have failed accounting for more than 30 percent of all removals. Should another institution on the current list not fail, then nearly 23 percent of the 1,684 institutions that made an appearance on the list would have failed. A 23 percent default rate is more than double the rate often cited by media reports on the failure rate of banks on the FDIC's official list. Of the $673 billion in assets removed from the list, the largest amount of $297.4 billion is from failure while terminations still trail at $279.7 billion.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	142	(56,729,564)
	Unassisted Merger	35	(8,440,695)
	Voluntary Liquidation	4	(10,584,114)
	Failures	154	(184,269,578)
	Asset Change		(4,697,497)
Still on List at 12/31/2014		54	11,591,999
Additions after 8/7/2009		347	113,481,158
End (12/31/2014)		401	125,073,157
Intraperiod Deletions1
	Action Terminated	534	222,995,923
	Unassisted Merger	171	74,507,776
	Voluntary Liquidation	10	2,324,142
	Failures	233	113,167,202
	Total	948	412,995,043
1Institution not on 8/7/2009 or 12/31/2014 list but appeared on a weekly list.

by Calculated Risk on 12/26/2014 12:12:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

7) House Prices: House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 5% or so in 2014 (after increasing about 12% nationally in 2013). What will happen with house prices in 2015?

The following graph shows the year-over-year change in the seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Click on graph for larger image.

The Composite 10 SA was up 4.9% compared to September 2013, the Composite 20 SA was up 4.9% and the National index SA was up 4.8% year-over-year.  Other house price indexes have indicated similar gains (see table below).

Although I use Case-Shiller, I also use several other price indexes. The following table shows the year-over-year change for several house prices indexes.  The year-over-year price increases slowed in 2014, but the slowdown is probably mostly over (I don't expect prices to go negative year-over-year).

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Sept-14	4.9%
Case-Shiller National	Sept-14	4.8%
CoreLogic	Oct-14	6.1%
Zillow	Oct-14	6.4%
Black Knight	Sept-14	4.6%
FNC	Oct-14	5.7%
FHFA Purchase Only	Sept-14	4.5%

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.  In some areas, like Phoenix, there appeared to be a bounce off the bottom - but that bounce appears to have ended in 2014.  The investor buying has slowed - as have distressed sales.

The consensus of housing analysts appears to be for price increases of around 3.5% in 2015.

In 2015, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis.  Low inventories, and a better economy (with more consumer confidence) suggests further price increases in 2015.  I expect we will see prices up mid single digits (percentage) in 2015 as measured by these house price indexes.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/26/2014 09:36:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

10) Housing Inventory: It appears housing inventory bottomed in early 2013. Will inventory increase further in 2015, and, if so, by how much?

Tracking housing inventory is very helpful.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2014.

Click on graph for larger image.

According to the NAR, inventory at 2.09 million is up slightly year-over-year from 2.05 million in November 2013, and up from 1.99 million in November 2012.  A small increase over the last two years.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory and this shows that inventory bottomed in January 2013, and is now up about 9.1% from the bottom on a seasonally adjusted basis.

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. 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 from November 2013 (blue line).

Months of supply was at 5.1 months in November, unchanged from 5.1 months in November 2013.   Even with the increase in inventory over the last two years, the current supply is still very low.

The NAR numbers are the usual measure of inventory.  However Zillow also has some inventory data (by state, city, zip code and more here).   We have to be careful using the Zillow data because the coverage is probably increasing, but looking at the zip code data, it appears inventory is up about 9% year-over-year.  This ranges from a sharp year-over-year decrease in some cities (like Denver) to a sharp increase in other areas (like Bakersfield, CA).   The housing market is slowly moving back to normal, and real estate is local!

Whenever I talk with real estate agents, I ask why they think inventory is so low. A common reason for low inventory is that potential sellers can't find homes to buy (because inventory is so low). Another reason for low inventory is that many homeowners are still "underwater" on their mortgages and can't sell.  This is becoming less of a problem.

As the market moves back to normal, it seems homeowners will sell for the usual reasons (changing jobs, kids, etc).

Right now my guess is active inventory will increase further in 2015 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in 2015).  I expect active inventory to move closer to 6 months supply this summer.   If correct, this will keep house price increases down in  2015.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?