by Calculated Risk on 5/30/2013 10:03:00 AM

From the NAR: Pending Home Sales Edge Up in April

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 0.3 percent to 106.0 in April from 105.7 in March, and is 10.3 percent above April 2012 when it was 96.1; the data reflect contracts but not closings.

Home contract activity is at the highest level since the index hit 110.9 in April 2010, immediately before the deadline for the home buyer tax credit. Pending sales have been above year-ago levels for the past 24 months.
...
The PHSI in the Northeast jumped 11.5 percent to 92.3 in April and is 17.7 percent above a year ago. In the Midwest the index rose 3.2 percent to 107.1 in April and is 15.1 percent higher than April 2012. Pending home sales in the South slipped 1.1 percent to an index of 119.2 in April but are 12.3 percent above a year ago. With pronounced inventory constraints, the index in the West fell 7.6 percent in April to 94.6 and is 2.6 percent below April 2012.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in May and June.

With limited inventory at the low end and fewer foreclosures, we might see flat or even declining existing home sales. The key is that the number of conventional sales is increasing while foreclosures and short sales decline - and that is a sign of an improving market (although with significant investor buying), even if total sales decline.

by Calculated Risk on 5/30/2013 08:30:00 AM

Note: The BEA reported GDP for Q1 was revised down to a 2.4% annualized real growth rate from 2.5% in the advance report:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP increased 2.5 percent. With the second estimate for the first quarter, increases in private inventory investment, in exports, and in imports were less than previously estimated, but the general picture of overall economic activity is not greatly changed.

I'll have more on GDP later.

The DOL reports:

In the week ending May 25, the advance figure for seasonally adjusted initial claims was 354,000, an increase of 10,000 from the previous week's revised figure of 344,000. The 4-week moving average was 347,250, an increase of 6,750 from the previous week's revised average of 340,500.

The previous week was revised up from 340,000.

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 347,250.

Claims were above the 340,000 consensus forecast.

by Calculated Risk on 5/29/2013 09:00:00 PM

Tim Duy thinks the Fed might start to taper asset purchases in September: September Looking Good

A "few more months" I interpret as June, July, and August, which puts the beginning of tapering at the September FOMC meeting. I think that Fed speakers are sending pretty clear signals to prepare for a September policy change.

Some big names on Wall Street don't agree. Vincent Reinhart at Morgan Stanley believes the data will push the Fed back to December. The view at Goldman Sachs is reportedly similar. To be sure, the data might cut in that direction, but I think that the bar to tapering might be lower than believed by those looking for a shift in December. We may believe the Federal Reserve's dual mandate argues for a longer period of QE at its current pace, but I am thinking that for the Federal Reserve, the dual mandate has more to do with the lift-off date from ZIRP than the end of QE. They have tended to argue for more or less QE on the basis of "stronger and sustainable" improvement in labor markets, and, given the obvious shift in tone among Fed speakers, I think we have reached that benchmark. At this point, they are just looking for a little more confirmation, in their minds erring on the side of being "too easy."

A lot of data will be coming in the door over the next week and a half, culminating in the all-important employment report on Friday, June 5. I think even a moderately positive run of data will further cement a September shift.

Most analysts expect some economic slowdown in Q2 and Q3 due to the significant fiscal drag over the next couple of quarters. I expect the Fed will wait and see how much fiscal policy impacts growth and employment, so - unless the data is very strong - I think the Fed will wait until at least September before they start tapering.

Of course "tapering" is still very accommodative.

Thursday economic releases:
• At 7:00 AM ET, the BEA will release the second estimate of Q1 GDP. The consensus is that real GDP increased 2.5% annualized in Q1, unchanged from the advance report.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims at 340 thousand, unchanged from last week.

• At 10:00 AM, the NAR will release Pending Home Sales Index for April. The consensus is for a 1.4% increase in the index

by Calculated Risk on 5/29/2013 04:33:00 PM

From economist Tom Lawler:

The FDIC released its Quarterly Banking Profile for the first quarter of 2013, and according to the report the carrying value of 1-4 family residential real estate owned (REO) by FDIC-insured institutions at the end of March was $7.89 billion, down from $8.34 billion at the end of December, and down from $11.08 billion at the end of March 2012.

Assuming that the average carrying value of SF REO at FDIC-insured institutions is 50% higher than the average for Fannie Mae and Freddie Mac, here is a chart showing quarterly SF REO inventories at Fannie, Freddie, FHA, FDIC-insured institutions and private-label securities. (The source of my PLS data only had data through the end of February, which I used for Q1/2013).

Click on graph for larger image.

SF REO inventories at these entities totaled an estimated 341,439 at the end of March, down 24% from last March, down 39% from March 2011, and down 47% from September 2008.

by Calculated Risk on 5/29/2013 01:22:00 PM

From John Gittelsohn at Bloomberg: Carrington Stops Buying U.S. Rentals as Blackstone Adding (ht Soylent Green Is People)

“We just don’t see the returns there that are adequate to incentivize us to continue to invest,” [Bruce] Rose, 55, chief executive officer of Carrington Holding Co. LLC, said in an interview at his Aliso Viejo, California office. “There’s a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”
...
Carrington, which started in 2003 as a mortgage investment fund and has managed almost 25,000 rental homes for itself and others, has been joined by hundreds of institutional and international investors buying single-family homes after prices plunged following the housing crash.
...
Blackstone Group LP (BX), the largest investor in single-family rentals, has spent $4.5 billion to amass more than 26,000 homes and continues to buy, according to Eric Elder, a spokesman for Invitation Homes, the rental housing division of the world’s largest private equity firm. ... Blackstone’s net yields on its occupied houses are about 6 percent to 6.5 percent ...

Back in late 2008 and early 2009, I started reporting on small investor groups buying low end single family properties to rent. Since then rents have increased sharply and vacancy rates fallen.

Early last year I checked back with these small investors, and they had all stopped buying. The numbers no longer made sense with all the large institutional buyers.   Now it appears the numbers no longer make sense for at least one large buyer.

by Calculated Risk on 5/29/2013 12:03:00 PM

From J.D. Harrison at the WaPo: Small business lending freeze starting to thaw

The credit health of small companies across the country improved during the first quarter of 2013, according to a new report by Experian and Moody’s Analytics ... Sageworks, a financial information firm, released its latest private company report earlier this week, which shows that the average risk of business loan default has dropped to 4.1 percent from 5.1 percent last April.
...
“The improvement in default rates coupled with healthy sales and profitability show that private companies may be well positioned to borrow,” said Sageworks Chairman Brian Hamilton.

The small business lending Index from Direct Capital, which provides equipment leasing and business loans, backs up that claim, showing that small business borrowing demand ticked higher nationwide for the fourth straight month in April. Over that period, the number of small business owners seeking loans has surged 44 percent compared to the first four months of 2012.

But are they actually finding the capital they need? More and more of them, yes, according to online lending platform Biz2Credit’s monthly survey.

The report showed the nation’s largest banks approved 16.8 percent of small business loans in April, up from 15.7 percent in March and 10.6 percent in April 2012.

Small businesses have been slow to recover, partially because so many small businesses are real estate and retail related.  Improving credit is a positive sign and might lead to more small business hiring.

by Calculated Risk on 5/29/2013 10:15:00 AM

The FDIC released the Quarterly Banking Profile for Q1 today.

Improvements in noninterest income and expense, plus broad-based reductions in loan loss provisions, outweighed declining net interest income and helped lift industry earnings to an all-time high of $40.3 billion in first quarter 2013. First-quarter net income was $5.5 billion (15.8 percent) higher than in first quarter 2012, as a reduction in expenses for litigation costs and proceeds from a legal settlement boosted reported earnings. Half of all insured institutions reported year-over-year improvement in quarterly earnings, the lowest proportion since fourth quarter 2009.

The FDIC reported the number of problem banks declined:

The number of FDIC-insured institutions reporting financial results fell to 7,019 in the first quarter, down from 7,083 in fourth quarter 2012. Mergers absorbed 55 institutions during the quarter, and four institutions failed. This is the smallest number of failures in a quarter since second quarter 2008. For a 7th consecutive quarter, no new insured institutions were added. Except for charters created to absorb failed banks, there have been no new charters added since fourth quarter 2010. The number of insured institutions on the FDIC’s “Problem List” declined for an eighth consecutive quarter, from 651 to 612. Total assets of “problem” institutions declined from $233 billion to $213 billion. The number of full-time equivalent employees at insured institutions fell from 2,110,276 to 2,102,839 during the quarter.

Click on graph for larger image.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $8.34 billion in Q4 2012 to $7.89 billion in Q1. This is the lowest level of REOs since Q4 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

by Calculated Risk on 5/29/2013 09:14:00 AM

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

The Refinance Index decreased 12 percent, the largest single week drop in refinance applications this year, from the previous week to the lowest level since December 2012. The seasonally adjusted Purchase Index increased 3 percent from one week earlier.
...
"Refinance applications fell for the third straight week bringing the refinance index to its lowest level since December 2012 as mortgage rates increased to their highest level in a year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Rates rose in response to stronger economic data and an increasing chance that the Fed may soon begin to taper their asset purchases."

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.90 percent, the highest rate since May 2012, from 3.78 percent, with points unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

There has been a sustained refinance boom for over a year.

However the index is down almost 30% over the last three weeks, and this is the lowest level since last December.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and the 4-week average of the purchase index is up about 10% from a year ago.

by Calculated Risk on 5/28/2013 09:19:00 PM

Earlier on house prices:
• Case-Shiller: Comp 20 House Prices increased 10.9% year-over-year in March

• Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000

And from Nick Timiraos at the WSJ about concerns of a new bubble: Home Sales Power Optimism

The pace of home-price gains has raised concerns among some economists over whether low mortgage rates have stimulated unsustainable home-price inflation—the proverbial bubble that some critics of Fed policies have feared. ...

The worries about rapid price growth look especially founded in more expensive markets such as San Francisco, Los Angeles and San Diego that have witnessed double-digit price gains over the past year. While home prices still look cheap on a historical basis, "the trouble is that that impression is almost entirely the function of low mortgage rates," said Stan Humphries, chief economist at Zillow Inc. Cheap credit is "distorting housing considerably," he said.

Others say it's too soon for alarm. Price gains largely reflect a rebound from low levels and prices remain largely in line with their long-run relationship between incomes and rents, said Christopher Thornberg, an economist with Beacon Economics in Los Angeles. "Could this thing go on too long? Absolutely," he said. "Could it turn into the next bubble? Absolutely. But we're not there yet, so I'm not going to start screaming 'Bubble.' "

And from Catherine Rampell at the NY Times: Homes See Biggest Price Gain in Years, Propelling Stocks

Economists generally expect home prices to continue rising, particularly as the economy improves and more young people move out of their parents’ homes and into homes of their own. And many dismiss concerns of a potential bubble, not only because household formation is growing but also because housing prices remain well below their highs. Even after 10 straight months of year-over-year gains, the 20-city Case-Shiller composite price index is 28 percent below its previous peak in July 2006, which is probably a good thing.

“Talk of a house price bubble seems premature,” said Ed Stansfield, an economist at Capital Economics. “In relation to incomes, rents or their own past, U.S. home prices still look low.”

What’s more, credit is still hard to come by. The Federal Reserve has pushed interest rates down about as far as they can go, but many people who want to buy are still finding it difficult to get a home loan.

“We usually think of bubbles as being driven by extremely easy credit, with people borrowing more than the outstanding value of the house and making little to no down payment,” said Mr. Gapen. “That’s not the case with credit standards today.”

Wednesday economic releases:
• At 7:00 AM ET, Update: Because of the holiday, this will probably be released on Thursday. the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. Look for rising mortgage rates.

• At 10:00 AM, the FDIC will release the Q1 Quarterly Banking Profile and hold "a press conference to discuss a comprehensive summary of the first quarter 2013 financial results for all FDIC-insured institutions". The webcast of the press conference will be available here.

by Calculated Risk on 5/28/2013 06:34:00 PM

From Zillow today: 30-Year Fixed Mortgage Rates Rise to 12-Month Highs; Current Rate is 3.71%

Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 3.71 percent, up from 3.58 percent at this same time last week.

The 30-year fixed mortgage rate hovered between 3.65 and 3.68 percent for the majority of the week before rising to the current rate this morning.

“Rates spiked last week after meeting minutes revealed the Fed was contemplating scaling back economic stimulus plans much earlier than expected,” said Erin Lantz, director of Zillow Mortgage Marketplace. “Now at 12-month highs, we expect rates to remain stable in the near-term, but new direction from the Fed and employment figures could boost rates significantly.”

Here is an update to an old graph - by request - that shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey. 

Click on graph for larger image.

Currently the 10 year Treasury yield is 2.135% and 30 year mortgage rates are at 3.71% (according to Zillow). Based on the relationship from the graph, if the ten year yield stays in this range, 30 year mortgage rates might move up to around 4%.

Note: The yellow markers are for the last three years with the ten year yield below 3%. A trend line through the yellow markers only is a little lower, but still close to 4% at the current 10 year Treasury yield.