by Calculated Risk on 10/31/2012 09:10:00 PM

Here are the winners for the October economic question contest:

1st: Don Durito

2nd tie: Pat MacAuley, Vijay Kumar, Christopher Brandow, Daniel Brawdy and 2 OpenID Users.

Congratulations all!

Thursday:
• At 8:15 AM: ADP will release their Employment Report for October. This report is for private payrolls only (no government). The consensus is for 155,000 payroll jobs added in October. However this is the first report using a new methodology, and the consensus probably doesn't reflect that change. I expect something significantly lower than the "consensus". This doesn't mean the labor market is weaker than originally thought - just that the ADP methodology has been changed.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 365 thousand from 369 thousand.  Note: There will probably some increase in weekly unemployment claims over the next few weeks related to Hurricane Sandy.

• Also at 8:30 AM, Productivity and Costs for Q3. The consensus is for a 1.3% increase in unit labor costs.

• At 10:00 AM, the ISM Manufacturing Index for October will be released. The consensus is for a decrease to 51.0, down from 51.5 in September. (above 50 is expansion).

• Also at 10:00 AM, the Census Bureau will released the Construction Spending report for September. The consensus is for a 0.7% increase in construction spending.

• All day: Light vehicle sales for October. The consensus is for light vehicle sales to increase to 15.0 million SAAR in October (Seasonally Adjusted Annual Rate).

Here are the first four questions for the November economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/31/2012 06:27:00 PM

From the National Restaurant Association: Restaurant Performance Index Declined in September Due to Softer Sales, Traffic

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.4 in September, down 0.3 percent from August. Despite the decline, September represented the 11th consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators.

“Although restaurant operators reported softer same-store sales and customer traffic levels in September, they are somewhat more bullish about sales growth in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Forty-five percent of restaurant operators expect their sales to improve in the next six months, while only 11 percent expect weaker sales.”

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.9 in September – down 0.7 percent from a level of 100.6 in August. Although same-store sales remained positive in September, the softness in the labor and customer traffic indicators outweighed the performance, which led to a Current Situation Index reading below 100 for the second time in the last three months.

Click on graph for larger image.

The index declined to 100.4 in September, down 0.3% from August (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

by Calculated Risk on 10/31/2012 04:00:00 PM

From the National Multi Housing Council (NMHC): Apartment Market Expansion Continues as Growth Rate Moderates

Apartment markets improved across all areas for the seventh quarter in a row, but the pace of improvement moderated according to the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (56), Sales Volume (51), Equity Financing (56) and Debt Financing (65) all measured at 50 or higher, indicating growth from the previous quarter.

“Even after nearly three years of recovery, apartment markets around the country remain strong as more report tightening conditions than not,” said NMHC Chief Economist Mark Obrinsky. “The dynamic that began in 2010 remains in place: the increase in prospective apartment residents continues to outpace the pickup in new apartments completed. While development activity has picked up considerably since the trough, finance for both acquisition and construction remains constrained, flowing mainly to the best properties in the top markets.”
...
Market Tightness Index declined to 56 from 76. Marking the 11th straight quarter of the index topping 50, the majority (62 percent) reported stable market conditions. One quarter reported tighter markets and 14 percent indicated markets as looser.

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last eleven quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q3 2012 to 4.6%, down from 4.7% in Q2 2012, and down from 8.0% at the end of 2009. This was the lowest vacancy rate in the Reis survey in over 10 years.

Even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be many more completions in 2012 than in 2011, increasing the supply.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010 - and will probably be useful in indicating when the vacancy rate will stop falling.

by Calculated Risk on 10/31/2012 02:30:00 PM

From the Federal Reserve: The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices

In the October survey, small fractions of domestic banks, on net, reported easing standards for business lending and some categories of consumer lending over the past three months. Respondents reported little change in residential real estate lending standards on balance. Significant fractions of banks reported a strengthening of demand for commercial real estate loans, residential mortgages, and auto loans, on balance, while demand for most other types of loans was about unchanged.
...
Within consumer lending, modest fractions of respondents continued to report an easing of standards on credit card and auto loans; respondents indicated that their standards on other types of consumer loans were about unchanged.
...
Special questions on lending to and competition from European banks. The October survey also included questions about European banking institutions and their affiliates that have been asked on several recent surveys. Respondents to the domestic and foreign survey again reported that their lending standards to European banks and their affiliates had tightened over the past three months, but the fractions of respondents indicating that they had tightened standards declined significantly between the July and October surveys, on net. As in the July survey, domestic banks reported that they had experienced little change in demand for loans from European banks and their affiliates and subsidiaries.

Of the respondents that indicated that their banks compete with European banks for their business, a slight majority reported that they had experienced a decrease in competition from European banks over the past three months, but the decrease did not appreciably boost business at their banks. A smaller but significant fraction of respondents indicated that a decrease in competition from European banks had increased business at their banks to some extent.
emphasis added

Click on graph for larger image.

Here are some charts from the Fed.

This graph shows the change in demand for CRE (commercial real estate) loans.

Increasing demand and some easing in standards suggests some increase in CRE activity.

The second graph shows the change in demand for residential mortgages. Note the break in the graph - in recent years, the Fed has asked about demand for different types of mortgages.

The survey also has some discussion on Europe. Whereas domestic banks are easing standards slightly and seeing an increase in demand, they are tightening standards for lending to European banks.

by Calculated Risk on 10/31/2012 12:42:00 PM

From CoreLogic: CoreLogic® Reports 57,000 Completed Foreclosures in September

CoreLogic ... today released its National Foreclosure Report for September that provides monthly data on completed U.S. foreclosures and the overall foreclosure inventory. According to the report, there were 57,000 completed foreclosures in the U.S. in September 2012, down from 83,000 in September 2011 and 59,000 in August 2012. Prior to the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month between 2000 and 2006. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 3.9 million completed foreclosures across the country.

Approximately 1.4 million homes, or 3.3 percent of all homes with a mortgage, were in the national foreclosure inventory as of September 2012 compared to 1.5 million, or 3.5 percent, in September 2011. Month-over-month, the national foreclosure inventory was down 1.1 percent from August 2012 to September 2012. The foreclosure inventory is the share of all mortgaged homes in any stage of the foreclosure process.

“The continuing downward trend in foreclosures along with a gradual clearing of the shadow inventory are signs of stabilization and improvement in the housing market,” said Anand Nallathambi, president and CEO of CoreLogic. “Increasingly improving market conditions and industry and government policy are allowing distressed homeowners to pursue refinancing, loan modifications or short sales rather than foreclosures.”
...
“Homes lost to foreclosure in September 2012 are down 50 percent since the peak month in September 2010 and 22 percent less than the beginning of the year,” said Mark Fleming, chief economist for CoreLogic. “While there is significant progress to be made before returning to pre-crisis levels, the trend is in the right direction as short sales, up 27 percent year over year in August, continue to gain popularity.”

Note: The foreclosure inventory reported by CoreLogic is lower than the number reported by LPS of 3.87% of mortgages or 1.9 million in foreclosure.

Many observers expected a "surge" in foreclosures this year, but that hasn't happened. However there are still a large number of properties in the foreclosure inventory in some states:

The five states with the highest foreclosure inventory as a percentage of all mortgaged homes were: Florida (11.5 percent), New Jersey (7.3 percent), New York (5.3 percent), Illinois (5.2 percent) and Nevada (4.9 percent).

by Calculated Risk on 10/31/2012 09:53:00 AM

From the Chicago ISM:

October 2012: The Chicago Purchasing Managers reported October's Chicago Business Barometer idled, up just 0.2 to a still contractionary 49.9.

Business Activity measures reflected weakness in five of seven indexes, most notably as the rate of expansion in Production and Employment slowed while New Orders stalled near neutral and Order Backlogs remained in contraction.

EMPLOYMENT: 33 month low;

INVENTORIES: slipped into contraction;

PRICES PAID: inflation slowed a bit;

New orders improved slightly from 47.4 to 50.6 in October. Employment was at 50.3, down from 52.0 in September.

This was below expectations of a reading of 51.0.

by Calculated Risk on 10/31/2012 07:03:00 AM

From the MBA: Refinance Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 6 percent from the previous week to the lowest level since the end of August. 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 ($417,500 or less) increased to 3.65 percent from 3.63 percent, with points decreasing to 0.39 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The refinance index has declined for four straight weeks, but is still at a high level.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

This index is not indicating a pickup in purchase activity.

by Calculated Risk on 10/30/2012 08:20:00 PM

US Markets will be open on Wednesday. Currently S&P 500 futures are up slightly.

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

• At 9:45 AM, the Chicago Purchasing Managers Index for October will be released. The consensus is for an increase to 51.0, up from 49.7 in September.

• Weather delayed: The October National Multi Housing Council (NMHC) Quarterly Apartment Survey will be released either Wednesday or Thursday. This is a key survey for apartment vacancy rates and rents.

• Weather delayed: The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.


The last question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

Earlier on House Prices:
• Case-Shiller: House Prices increased 2.0% year-over-year in August
• House Price Comments, Real House Prices, Price-to-Rent Ratio
• All Current House Price Graphs

by Calculated Risk on 10/30/2012 05:23:00 PM

The Census Bureau released the Housing Vacancies and Homeownership report for Q3 2012 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. However, based on the initial evaluation, it appears the vacancy rates are too high.

It might show the trend, but I wouldn't rely on the absolute numbers. My understanding is the Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate was unchanged from Q2 at 65.5%, and down from 66.3% in Q3 2011.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range.

The HVS homeowner vacancy rate declined to 1.9% from 2.1% in Q2. This is the lowest level since 2005 for this report.

The homeowner vacancy rate has peaked and is now declining, although it isn't really clear what this means. Are these homes becoming rentals? Anyway - once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

The rental vacancy rate was unchanged from Q2 at 8.6%, and down from 9.8% in Q3 2011.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate - and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that the housing vacancy rates have declined sharply.

Earlier on House Prices:
• Case-Shiller: House Prices increased 2.0% year-over-year in August
• House Price Comments, Real House Prices, Price-to-Rent Ratio
• All Current House Price Graphs

by Calculated Risk on 10/30/2012 02:58:00 PM

The Not Seasonally Adjusted (NSA) house price indexes will show month-to-month declines soon. I expect the CoreLogic index to show month-to-month declines in the September report, and the Case-Shiller Composite 20 (NSA) to decline month-to-month in October. This will not be a sign of impending doom - or another collapse in house prices - it is just the normal seasonal pattern.

Even in normal times house prices tend to be stronger in the spring and early summer, then in the fall and winter. Currently there is a stronger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have a larger negative impact on prices in the fall and winter.

In the coming months, the key will be to watch the year-over-year change in house prices and to compare to the NSA lows in early 2012. I think house prices have already bottomed, and will be up slightly year-over-year when prices reach the usual seasonal bottom in early 2013.

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index over the last several years (both through August). Right now it looks like CoreLogic will turn negative in the September report (CoreLogic is 3 month weighted average, with the most recent month weighted the most). Case-Shiller NSA will probably turn negative month-to-month in the October report (also a three month average, but not weighted).

The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust. (I was one of several people to question this change in the seasonal factor - and this lead to Case-Shiller reporting the NSA numbers).

It appears the seasonal factor has stopped increasing, and I expect that over the next several years, the seasonal factors will slowly move back towards the previous levels.