by Calculated Risk on 11/29/2012 08:30:00 AM

Note: From MarketWatch: U.S. Q3 GDP revised up to 2.7% from 2.0% (I'll have more later on the GDP revision).

The DOL reports:

In the week ending November 24, the advance figure for seasonally adjusted initial claims was 393,000, a decrease of 23,000 from the previous week's revised figure of 416,000. The 4-week moving average was 405,250, an increase of 7,500 from the previous week's revised average of 397,750.

The previous week was revised up from 410,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.


Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 405,250.

This sharp increase in the 4 week average is due to Hurricane Sandy as claims increased significantly in the impacted areas (update: claims increased in NY, NJ and other impacted areas over the 4-week period - some of those areas saw a decline this week). Note the spike in 2005 related to hurricane Katrina - we are seeing a similar impact, although on a smaller scale.

Weekly claims were about at the consensus forecast.


And here is a long term graph of weekly claims:

Mostly moving sideways this year until the recent spike due to Hurricane Sandy. Weekly claims should continue to decline over the next few weeks.


All current Employment Graphs

by Calculated Risk on 11/28/2012 08:55:00 PM

First, Jon Hilsenrath at the WSJ discusses some of the issues that will be discussed at the next FOMC meeting in December: Fed Likely to Keep Buying Bonds

Central bank officials face critical decisions at their next policy meeting Dec. 11-12. ... Since September the Fed has been buying $40 billion a month of mortgage-backed securities and looks set to continue that program. ...

The more urgent issue is what to do with a $45 billion-a-month program known as Operation Twist, in which the central bank is buying long-term Treasury securities and funding the purchases with sales of short-term Treasurys.
...
Another issue for officials to consider at the December meeting is whether to alter their communications strategy. For several months, they have been debating whether to state explicitly what unemployment rates or inflation rates would get them to raise short-term interest rates from their very low levels. ... If the Fed is going to adopt such a move, it would make sense to do it either at the December meeting or in March, when Mr. Bernanke will hold news conferences and be able to explain the central bank's thinking on the complicated subject.
emphasis added

My guess is the Fed will expand "QE3" to around $85 billion per month when Operation Twist concludes. On communication, I'm not sure they are ready to change to thresholds for unemployment and inflation, so that will probably wait until March (but it could happen in December).

Thursday:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 390 thousand from 410 thousand.

• Also at 8:30 AM, the second estimate for Q3 GDP will be released. The consensus is that real GDP increased 2.8% annualized in Q3, revised up from 2.0% in the advance release.

• At 10:00 AM, the NAR will release Pending Home Sales Index for October. The consensus is for a 1.0% increase in the index.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for November. This is the last of the regional surveys for November, and the consensus is for a reading of -1, up from -4 in October (below zero is contraction).

Earlier on New Home Sales:
• New Home Sales at 368,000 SAAR in October
• New Home Sales and Distressing Gap
• New Home Sales graphs


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

by Calculated Risk on 11/28/2012 04:38:00 PM

Note: HARP is the program that allows borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac - and with high loan-to-value (LTV) ratios - to refinance at low rates.  Fannie or Freddie are already responsible for the loan, and allowing the borrower to refinance lowers the default risk.

From the FHFA:

The Federal Housing Finance Agency (FHFA) today released its September Refinance Report, which shows that Fannie Mae and Freddie Mac loans refinanced through the Home Affordable Refinance Program (HARP) accounted for nearly one-quarter of all refinances in the third quarter of 2012. More than 90,000 homeowners refinanced their mortgage in September through HARP with more than 709,000 loans refinanced since the beginning of this year. The continued high volume of HARP refinances is attributed to record-low mortgage rates and program enhancements announced last year.
...
In September, half of the loans refinanced through HARP had loan-to-value (LTV) ratios greater than 105 percent and one-fourth had LTVs greater than 125 percent.

In September, 19 percent of HARP refinances for underwater borrowers were for shorter-term 15- and 20-year mortgages, which help build equity faster than traditional 30-year mortgages.

HARP refinances in September represented 45 percent of total refinances in states hard hit by the housing downturn–Nevada, Arizona, Florida and Georgia–compared with 21 percent of total refinances nationwide.

Note: the automated system wasn't released until the end of March - and there were some issues with that system - so HARP refinances didn't really pickup until sometime in Q2. Now they are on pace for around 1 million refinances this year. 

These "underwater" borrowers are current (most took out loans 5 to 7 years ago), and they will probably stay current with the lower interest rate.

This table shows the number of HARP refinances by LTV through September of this year compared to all of 2011. Clearly there has been a sharp increase in activity. Note: Here is the September report.

HARP Activity
	2012, Through September	All of 2011	Since Inception
Total HARP	709,006	400,024	1,730,857
LTV >80% to 105%	407,330	340,033	1,338,565
LTV >105% to 125%	159,980	59,991	250,596
LTV >125%	141,696	0	141,696

by Calculated Risk on 11/28/2012 02:00:00 PM

Fed's Beige Book:

Economic activity expanded at a measured pace in recent weeks, according to reports from contacts in the twelve Federal Reserve Districts. Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco grew at a modest pace, while St. Louis and Minneapolis indicated a somewhat stronger increase in activity. In contrast, Boston reported a slower rate of growth. Weaker conditions in New York were attributed to widespread disruptions at the end of October and into November caused by Hurricane Sandy. Philadelphia reported general weakness that was exacerbated by the hurricane. ...

Among key sectors, consumer spending grew at a moderate pace in most Districts, while manufacturing weakened, on balance. Seven of the twelve Districts reported either slowing or outright contraction in manufacturing, and two others gave mixed reports. ...

And on real estate:

Overall, markets for single-family homes continued to improve across most Districts with the exception of Boston and Philadelphia. Residential real estate markets in the New York District were mixed but generally firm prior to the storm. Selling prices were steady or rising. Boston, New York, Richmond, Atlanta, Kansas City, and Dallas noted declining or tight inventories.

Construction and commercial real estate activity generally improved across Districts since the last report. Gains, albeit modest in most cases, were reported by Philadelphia, Richmond, Chicago, and Minneapolis. The gains among Cleveland's contacts were tempered by reports in recent weeks of a slowdown in inquiries and a decline in public-sector projects. Kansas City described activity as holding firm and noted that real estate markets remained stronger than a year ago.

Hmmm ... from "moderate" growth a few months ago, to "modest" growth in the last report, and now "measured". I'm not sure about the difference, but it does suggest sluggish growth. Real estate continues to be the bright spot.

by Calculated Risk on 11/28/2012 11:49:00 AM

New home sales in October were below expectations at a 368 thousand seasonally adjusted annual rate (SAAR). And sales for September were revised down from 389 thousand SAAR to 369 thousand.

This has led to some worrying about the housing recovery, as an example from Reuters: New Home Sales Drop 0.3%, Cast Shadow on Recovery

The data leaves the pace of new home sales just below the pace reported in May, suggesting little upward momentum the market for new homes.

Yes, new home sales have been moving sideways for the last 6 months. However sales are still up significantly from 2011, and I expect sales to continue to increase over the next few years.

New home sales have averaged 361,000 on an annual rate basis through October. That means sales are on pace to increase 18% from last year. Most sectors would be pretty upbeat about an 18% increase in sales.

But even with the significant increase this year, 2012 will be the 3rd lowest year since the Census Bureau started tracking new home sales in 1963. This year will be above 2010 and 2011, but below the 375,000 sales in 2009.   I expect sales to double from here within the next several years as distressed sales continue to decline.

Click on graph for larger image.

I started posting this graph four years ago when the "distressing gap" first appeared.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through October. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I don't expect much of an increase in existing home sales (distressed sales will slowly decline and be offset by more conventional sales). But I do expect this gap to close - mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

Earlier:
• New Home Sales at 368,000 SAAR in October
• New Home Sales graphs

by Calculated Risk on 11/28/2012 10:00:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 368 thousand. This was down from a revised 369 thousand SAAR in August (revised down from 389 thousand).

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in October 2012 were at a seasonally adjusted annual rate of 368,000 ... This is 0.3 percent below the revised September rate of 369,000, but is 17.2 percent above the October 2011 estimate of 314,000.

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

The months of supply increased in October to 4.8 months. September was revised up to 4.7 months (from 4.5 months).

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of October was 147,000. This represents a supply of 4.8 months at the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was just above the record low in October. The combined total of completed and under construction is also just above the record low since "under construction" is starting to increase.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In October 2012 (red column), 29 thousand new homes were sold (NSA). Last year only 25 thousand homes were sold in October. This was the third weakest October since this data has been tracked (above 2011 and 2010). The high for October was 105 thousand in 2005.

New home sales have averaged 361 thousand SAAR over the first 10 months of 2012, up sharply from the 307 thousand sales in 2011. Also sales are finally at the lows for previous recessions too.

This was below expectations of 387,000. I'll have more soon ...
New Home Sales graphs

by Calculated Risk on 11/28/2012 07:03:00 AM

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

This week’s results include an adjustment for the Thanksgiving holiday. ...

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.53 percent from 3.54 percent, with points remaining constant at 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

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, however the purchase index has increased 8 of the last 10 weeks and is now near the high for the year.

by Calculated Risk on 11/27/2012 09:01:00 PM

Earlier, a little good manufacturing news from the Richmond Fed: Manufacturing Activity Advanced in November; Optimism Increased

Manufacturing activity in the central Atlantic region advanced moderately in November following a slight pullback in October, according to the Richmond Fed's latest survey. ...

In November, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — gained sixteen points to 9 from October's reading of −7. Among the index's components, shipments rose twenty points to 11, new orders moved up seventeen points to finish at 11, and the jobs index increased eight points to 3.

And on consumer confidence from the Financial Times: US growth hopes lifted by housing data

The figures suggest that consumers and companies are holding their nerve despite anxiety about the fiscal cliff ... The Conference Board, an industry group, said its index of consumer attitudes towards the economy rose to 73.7 in November, its highest since February 2008.
excerpt with permission

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

• At 10:00 AM, New Home Sales for October from the Census Bureau will be released. The consensus is for a decrease in sales to 387 thousand Seasonally Adjusted Annual Rate (SAAR) in October from 389 thousand in September.).

• At 2:00 PM, the Federal Reserve Beige Book will be released.  This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This might show some slight improvement. Some analysts will be looking for concerns about Europe or the "fiscal cliff".

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 3.0% year-over-year in September
• Case-Shiller House Price Comments and Graphs
• Real House Prices, Price-to-Rent Ratio
• All Current House Price Graphs


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

by Calculated Risk on 11/27/2012 05:36:00 PM

A few weeks ago, I mentioned a recession probability chart from the St Louis Fed that was making the rounds. (see below). This graph shouldn't be interpreted as indicating a new recession. Jeff Miller at a Dash of Insight discussed why: Debunking the 100% Recession Chart.

Now the author, University of Oregon Professor Jeremy Piger, posted some FAQs and data for the chart online. Professor Piger writes:

2. How should I interpret these probabilities as a recession signal?

Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion. For an analysis of the performance of the model for identifying new turning points in real time, see:

Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008.

Click on graph for larger image in new window.

Here is the chart from FRED at the St Louis Fed.

Obviously we haven't seen three consecutive months above 80%. Also I expect the recent data point to be revised down.

This is kind of a Woody Allen and Marshall McLuhan moment! Those arguing this chart indicated a 100% probability of a new recession knew nothing of Piger's work.

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 3.0% year-over-year in September
• Case-Shiller House Price Comments and Graphs
• Real House Prices, Price-to-Rent Ratio
• All Current House Price Graphs

by Calculated Risk on 11/27/2012 03:00:00 PM

From the NY Fed: Decrease in Overall Debt Balance Continues Despite Rise in Non-Real Estate Debt

In its latest Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York announced that in the third quarter, non-real estate household debt jumped 2.3% to $2.7 trillion. The increase was due to a boost in student loans ($42 billion), auto loans ($18 billion) and credit card balances ($2 billion).

During the third quarter of 2012, total consumer indebtedness shrunk $74 billion to $11.31 trillion, a 0.7% decrease from the previous quarter. The reduction in overall debt is attributed to a decrease in mortgage debt ($120 billion) and home equity lines of credit ($16 billion), despite mortgage originations increasing for a fourth consecutive quarter.

“The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position,” said Donghoon Lee, senior economist at the New York Fed. “As consumers feel more comfortable, they may start to make purchases that were previously delayed.”
emphasis added

Here is the Q3 report: Quarterly Report on Household Debt and Credit

Mortgages, the largest component of household debt, continue to drive the decline in overall indebtedness. Mortgage balances shown on consumer credit reports continued to drop, and now stand at $8.03 trillion, a 1.5% decrease from the level in 2012Q2. Home equity lines of credit (HELOC) balances dropped by $16 billion (2.7%). Non-mortgage household debt balances instead jumped by 2.3% in the third quarter to $2.7 trillion, boosted by increases of $18 billion in auto loans, $42 billion in student loans, and $2 billion in credit card balances.
...
About 242,000 individuals had a new foreclosure notation added to their credit reports between June 30 and September 30, a slowdown of 5.5%, continuing the downward trend as foreclosure starts slowly move toward their pre-crisis levels.

Here are two graphs:

Click on graph for larger image.

The first graph shows aggregate consumer debt decreased in Q3. This was mostly due to a decline in mortgage debt.

However student debt is still increasing. From the NY Fed:

Outstanding student loan balances increased to $956 billion as of September 30, 2012, an increase of $42 billion from the previous quarter. However, of the $42 billion, $23 billion is new debt while the remaining $19 billion is attributed to previously defaulted student loans that have been newly updated on credit reports this quarter.

The second graph shows the percent of debt in delinquency. In general, the percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).

From the NY Fed:

Overall, delinquency rates improved slightly in 2012Q3. As of September 30, 8.9% of outstanding debt was in some stage of delinquency, compared with 9.0% in 2012Q2. About $1.01 trillion of debt is delinquent, with $740 billion seriously delinquent (at least 90 days late or “severely derogatory”).

There are a number of credit graphs at the NY Fed site.