by Calculated Risk on 8/26/2013 09:31:00 PM

A very disappointing report from CNBC tonight: Obama source predicts Summers will be named Fed chief soon

A source from Team Obama told CNBC that Larry Summers will likely be named chairman of the Federal Reserve in a few weeks though he is "still being vetted" so it might take a little longer.

I don't think Summers is a good choice for Fed Chair.  Also I doubt any delay is because he is still being vetted, more likely they are still trying to find the confirmation votes in the Senate.

Tuesday:
• 9:00 AM ET, S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May, and June. The consensus is for a 12.2% year-over-year increase in the Composite 20 index (NSA) for June. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.1% month-to-month seasonally adjusted.

• At 10:00 AM, Conference Board's consumer confidence index for August. The consensus is for the index to decrease to 78.0 from 80.3.

• Also at 10:00 AM, Richmond Fed Survey of Manufacturing Activity for August. The consensus is for a reading of 0 for this survey, up from minus 11 in July (Above zero is expansion).

by Calculated Risk on 8/26/2013 06:00:00 PM

Here is another weekly update on housing inventory: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly in 2013. 

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for July).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory increased more than the normal seasonal pattern, and finished the year up 7%. However in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

So far in 2013, inventory is up 21.4%, and there might be some further increases over the next few weeks.  It is important to remember that inventory is still very low, and is down 5.7% from the same week last year according to Housing Tracker.

This strongly suggests inventory bottomed early this year.   I expect inventory to be up year-over-year very soon (maybe in September), and I also expect the seasonal decline to be less than usual at the end of the year.  This increase in inventory also means price increases will slow.

by Calculated Risk on 8/26/2013 04:56:00 PM

A sad story from Michael Winerip at the NY Times: For Laid-Off Older Workers, Age Bias Is Pervasive

[A] substantial number of older workers who lost jobs — even those lucky enough to be re-employed — are still suffering. Two-thirds in that age group who found work again are making less than they did in their previous job; their median salary loss is 18 percent compared with a 6.7 percent drop for 20- to 24-year-olds.

The re-employment rate for 55- to 64-year-olds is 47 percent and 24 percent for those over 65, compared with 62 percent for 20- to 54-year-olds. And finding another job takes far longer: 46 weeks for boomers, compared with 20 weeks for 16- to 24-year-olds.

I think the age groups that are hit the hardest by a recession are those just entering the workforce, and those nearing retirement.   For those entering the workforce, it is tough to find that first job - and they face a long period of lower wages.  For those who are laid-off nearing retirement, it is very difficult to find a new job and learn new skills ... and the pay is usually substantially less.   

by Calculated Risk on 8/26/2013 01:41:00 PM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses June closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: LPS Home Price Index Report: U.S. Home Prices Up 1.2 Percent for the Month; Up 8.4 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on June 2013 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The LPS HPI is off 15.2% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 46.6% from the peak in Las Vegas, 37.6% off from the peak in Riverside-San Bernardino, CA (Inland Empire), and at new peaks in Austin, Dallas, Denver and Houston!

Note: Case-Shiller for June will be released tomorrow.

by Calculated Risk on 8/26/2013 10:34:00 AM

From the Dallas Fed: Texas Manufacturing Posts Slower Growth

Texas factory activity increased but at a slower pace in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell from 11.4 to 7.3.

Other measures of current manufacturing activity also indicated slower growth in August. The new orders index was positive for the fourth month in a row, although it moved down from 10.8 to 5.4. The shipments index also posted a fourth consecutive positive reading but slipped 6 points to 11.4. The capacity utilization index fell from 12.2 to 4.6.

Perceptions of broader business conditions improved again in August, with the general business activity and company outlook indexes posting their third consecutive positive readings. The general business activity index edged up from 4.4 to 5.0, and the company outlook index rose from 4.5 to 7.3.

Labor market indicators reflected an increase in hiring but sharply reduced workweeks. The employment index rose 2 points to 11.2, its highest reading in a year. Twenty percent of firms reported hiring new workers compared with 8 percent reporting layoffs. The hours worked index fell 11 points to -9.9, its lowest reading in nearly four years.

Prices and wages rose in August. The raw materials price index came in at 10, down from its previous reading of 15.9 but still indicative of higher input costs than in July. The finished goods price index was positive for the first time since March, rising 5 points to a reading of 4, suggesting selling prices were up from July as well. The wages and benefits index was positive but edged down to 14.5, although the great majority of manufacturers continued to note no change in compensation costs. Looking ahead, 34 percent of respondents anticipate further increases in raw materials prices over the next six months, while 25 percent expect higher finished goods prices.

Expectations regarding future business conditions remained optimistic in August. The indexes of future general business activity and future company outlook showed mixed movements but remained in strongly positive territory. Indexes for future manufacturing activity also remained solidly positive. emphasis added

by Calculated Risk on 8/26/2013 08:31:00 AM

According to the First Look report for July to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in July compared to June, and declined about 9% year-over-year. Also the percent of loans in the foreclosure process declined further in July and were down 31% over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.41% from 6.68% in June. Note: Some of the decrease in short term delinquencies in July is seasonal.   The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 2.82% in July from 2.93% in June. 

The number of delinquent properties, but not in foreclosure, is down 327,000 properties, and the number of properties in the foreclosure process is down 636,000 properties year-over-year.

LPS will release the complete mortgage monitor for July in early September.

LPS: Percent Loans Delinquent and in Foreclosure Process
	July 2013	June 2013	July 2012
Delinquent	6.41%	6.68%	7.03%
In Foreclosure	2.82%	2.93%	4.08%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,846,000	1,983,000	1,960,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,347,000	1,345,000	1,560,000
Number of properties in foreclosure pre-sale inventory:	1,406,000	1,458,000	2,042,000
Total Properties	4,599,000	4,785,000	5,562,000

by Calculated Risk on 8/25/2013 09:11:00 PM

Monday:
• 8:30 AM ET, Durable Goods Orders for July from the Census Bureau. The consensus is for a 4.0% decline in durable goods orders. The expected decline is from the volatile aircraft orders (and other transportation), and the consensus is for a 0.3% gain ex-transportation.

• At 10:30 AM, Dallas Fed Manufacturing Survey for August. The consensus is a reading of 4.5, up from 4.4 in July (above zero is expansion).

• During the Day: The LPS First Look at July's mortgage performance data.

Weekend:
• Schedule for Week of August 25th

• The Future is still Bright!

The Nikkei is up about 0.2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P and DOW futures are flat (fair value).

Oil prices have increased with WTI futures at $107.04 per barrel and Brent at $111.30 per barrel. The spread between WTI and Brent is back (but still small).

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are mostly moving sideways.  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 8/25/2013 04:46:00 PM

For new readers: I was very bearish on the economy when I started this blog in 2005 - back then I wrote mostly about housing (see: LA Times article and more here for comments about the blog). I started looking for the sun in early 2009, and now I'm even more optimistic looking out over the next few years.

Early this year I wrote The Future's so Bright .... In that post I outlined why I was becoming more optimistic, even though there might be too much deficit reduction in 2013. As I noted, "ex-austerity, we'd probably be looking at a decent year" in 2013. And of course - looking forward - Congress remains the key downside risk to the U.S. economy.

It still appears economic growth will pickup over the next few years. With a combination of growth in the key housing sector, a significant amount of household deleveraging behind us, the end of the drag from state and local government layoffs (four years of austerity mostly over), some loosening of household credit, and the Fed staying accommodative (even if the Fed starts to taper, the Fed will remain accommodative).

Here are some updates to the graphs I posted in January:

Click on graph for larger image.

This graph shows total and single family housing starts. Even after the 28.1% in 2012, the 780 thousand housing starts in 2012 were the fourth lowest on an annual basis since the Census Bureau started tracking starts in 1959. Starts averaged 1.5 million per year from 1959 through 2000.  Demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will come close to doubling from the 2012 level.

Residential investment and housing starts are usually the best leading indicator for economy, so this suggests the economy will continue to grow over the next couple of years.

The second graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011.

 In 2012, state and local government employment declined by 26,000 jobs.

In 2013, state and local employment is up 31 thousand so far.   So it appears that most of the state and local government layoffs are over and the drag on the economy is over.

And here is a key graph on the US deficit. This graph, based on the CBO's May projections, shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

As we've been discussing, the US deficit as a percent of GDP has been declining, and will probably decline to under 3% in 2015 before starting to increase again.   Of course many people (and many politicians) have been surprised by the rapid decline in the deficit (it was obvious to those of us paying attention).

Note: With 7.4% unemployment, there is a strong argument for less deficit reduction in the short term, but that view doesn't seem to be gaining any traction.

Here are a couple of graph on household debt (and debt service):

This graph from the the NY Fed shows aggregate consumer debt decreased further in Q2 2013. This was mostly due to a decline in mortgage debt.

From the NY Fed: "In Q2 2013 total household indebtedness fell to $11.15 trillion; 0.7 percent lower than the previous quarter and 12 percent below the peak of $12.68 trillion in Q3 2008. Mortgages, the largest component of household debt, fell $91 billion from the first quarter."

There will probably more deleveraging ahead (mostly from foreclosures and distressed sales), but this suggests some improvement in household balance sheets.

This graph is from the Fed's Household Debt Service and Financial Obligations Ratios. These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households.

The graph shows the DSR for both renters and homeowners (red), and the homeowner financial obligations ratio for mortgages and consumer debt. The overall Debt Service Ratio increased slightly in Q1, and is just above the record low set in Q4 2012 thanks to very low interest rates. The homeowner's financial obligation ratio for consumer debt also increased slightly in Q1, and is back to levels last seen in early 1995.

The blue line is the homeowner's financial obligation ratio for mortgages (blue). This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to 1998 (and 1981) levels.

Overall it appears the economy is poised for more growth over the next few years.

And in the longer term, I remain very optimistic too. I mentioned a few long term risks in my January post, but I also mentioned that I wasn't as concerned as many others about the aging of the population. By 2020, eight of the top ten largest cohorts (five year age groups) will be under 40, and by 2030 the top 11 cohorts are the youngest 11 cohorts. The renewing of America was one of the key points I made when I posted the following animation of the U.S population by age, from 1900 through 2060. The population data and estimates are from the Census Bureau (actual through 2010 and projections through 2060).

Last year, I said that looking forward I was the most optimistic since the '90s. And things are only getting better. The future's so bright, I gotta wear shades.

Yes, the song was about nuclear holocaust ... but it was originally intended the way I'm using it.

by Calculated Risk on 8/25/2013 11:29:00 AM

Here are two graphs I haven't updated for about a year.

As part of the new home sales report, the Census Bureau reported the number of homes sold by price and the average and median prices.

From the Census Bureau: "The median sales price of new houses sold in July 2013 was $257,200; the average sales price was $322,700."

The following graph shows the median and average new home prices.

Click on graph for larger image.

During the bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales. With fewer foreclosures now, it appears the builders are moving to slightly higher price points.

The second graph shows the percent of new home sales by price. At the peak of the housing bubble, almost 40% of new homes were sold for more than $300K - and over 20% were sold for over $400K.

The percent of home over $300K declined to 20% in January 2009. Now it has rebounded to around 38%. And less than 12% were under $150K.

Earlier on New Home Sales:
• New Home Sales decline sharply to 394,000 Annual Rate in July
• Comments on New Home Sales

by Calculated Risk on 8/24/2013 01:11:00 PM

The key reports this week are Case-Shiller house prices for June on Tuesday, the second estimate of Q2 GDP on Thursday, and the July Personal Income and Outlays report on Friday.

For manufacturing, the Dallas and Richmond regional manufacturing surveys for August will be released this week.

----- Monday, August 26th -----
8:30 AM: Durable Goods Orders for July from the Census Bureau. The consensus is for a 4.0% declined in durable goods orders.

10:30 AM: Dallas Fed Manufacturing Survey for August. The consensus is a reading of 4.5, up from 4.4 in July (above zero is expansion).

----- Tuesday, August 27th -----
9:00 AM: S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May, and June.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through May 2012 (the Composite 20 was started in January 2000).

The consensus is for a 12.2% year-over-year increase in the Composite 20 index (NSA) for June. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.1% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for August. The consensus is for the index to decrease to 78.0 from 80.3.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for August. The consensus is for a reading of 0 for this survey, up from minus 11 in July (Above zero is expansion).

----- Wednesday, August 28th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM ET: Pending Home Sales Index for July. The consensus is for a 1.0% decrease in the index.

----- Thursday, August 29th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 330 thousand from 336 thousand last week.

8:30 AM: Q2 GDP (second estimate). This is the second estimate of Q2 GDP from the BEA. The consensus is that real GDP increased 2.2% annualized in Q2, revised up from the advance estimate of 1.7% in Q2.

----- Friday, August 30th -----
8:30 AM ET: Personal Income and Outlays for July. The consensus is for a 0.2% increase in personal income in June, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for August. The consensus is for an increase to 53.0, up from 52.3 in July.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 80.0.