by Calculated Risk on 8/28/2013 04:35:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 2.70% from 2.79% in June. Freddie's rate is down from 3.42% in July 2012, and this is the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications.

I'm frequently asked when the distressed sales will be back to normal levels, and that will happen when the percent of seriously delinquent loans (and in foreclosure) is back to normal.

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for July next week.

Click on graph for larger image

Although this indicates some progress, the "normal" serious delinquency rate is under 1%. 

At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2016 or so.  Therefore I expect a fairly high level of distressed sales for 2 to 3 more years (mostly in judicial states).

by Calculated Risk on 8/28/2013 02:22:00 PM

Dean Baker beat me to this: Rising Mortgage Rates Did Not Affect June Case-Shiller Data

The Washington Post ... article today on the Case-Shiller June price index attributed the slower price growth in part to higher interest rates. This makes no sense.

The Case-Shiller index is an average of three months data. The June release is based on the price of houses that were closed in April, May, and June. Since there is typically 6-8 weeks between when a contract is signed and when a sale is completed these houses would have come under contract in the period from February to May. This is a period before there was any real rise in interest rates.

... We will first begin to see a limited impact of higher interest rates in the Case Shilller index in the July data and the impact of the rise will not be fully apparent until the October index is released.

One addition: we will not see any impact of higher mortgage rates until at least the "August" Case-Shiller report is released (see earlier post), and - as Baker notes - the impact will not be fully apparent in the Case-Shiller index until the "October" report is released because of the 3 month average. However other prices indexes - like Zillow and LPS - will pick up any impact sooner.

by Calculated Risk on 8/28/2013 11:41:00 AM

The Case-Shiller house price indexes for June were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Zillow makes a strong argument that the Case-Shiller index is currently overstating national house price appreciation.

Another 12% Hike Predicted for July Case-Shiller Indices

The Case-Shiller data for June (2013 Q2) came out [yesterday] and, based on this information and the July 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (July 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]), as well as the 10-City Composite Home Price Index (NSA) increased 12.5 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from June to July will be 1.0 percent for the 20-City Composite and 1.2 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, September 24.
...
As home value appreciation is beginning to moderate, the Case-Shiller indices will continue to show an inflated sense of national home value appreciation. First signs of a slowdown in monthly appreciation are present, although these slowdowns are fairly timid. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. In contrast, the ZHVI does not include foreclosure resales and shows home values for July 2013 up 6 percent from year-ago levels. We expect home value appreciation to continue to moderate through the end of 2013 and into 2014, rising 4.8 percent between July 2013 and July 2014. The main drivers of this moderation include rising mortgage rates, less investor participation – decreasing demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full July 2013 report can be found here.
...
To forecast the Case-Shiller indices, we use the June Case-Shiller index level, as well as the July Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with July foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

The following table shows the Zillow forecast for the July Case-Shiller index.

Zillow July Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	July 2012	157.21	154.35	144.58	141.81
Case-Shiller (last month)	June 2013	173.37	172.25	159.54	158.32
Zillow Forecast	YoY	12.5%	12.5%	12.5%	12.5%
	MoM	2.0%	1.2%	1.9%	1.2%
Zillow Forecasts1		176.8	174.0	162.6	159.9
Current Post Bubble Low		146.46	149.62	134.07	136.88
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		20.7%	16.3%	21.3%	16.8%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 8/28/2013 10:00:00 AM

From the NAR: July Pending Home Sales Slip

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.3 percent to 109.5 in July from 110.9 in June, but is 6.7 percent above July 2012 when it was 102.6; the data reflect contracts but not closings. Pending sales have stayed above year-ago levels for the past 27 months.
...
The PHSI in the Northeast fell 6.5 percent to 81.5 in July but is 3.3 percent higher than a year ago. In the Midwest the index slipped 1.0 percent to 113.2 in July but is 14.5 percent above July 2012. Pending home sales in the South rose 2.6 percent to an index of 121.5 in July and are 7.7 percent higher than a year ago. The index in the West fell 4.9 percent in July to 108.6, and is 0.4 percent below July 2012.

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

Note: It appears some buyers pushed to close in July because of rising mortgage rates (People who signed contracts in May probably locked in mortgage rates, and they wanted to close before the lock expired).  So I expect closed sales in August to decline more than the pending home sales index would indicate.

by Calculated Risk on 8/28/2013 07:01:00 AM

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

Mortgage applications decreased 2.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 23, 2013. ...

The Refinance Index decreased 5 percent from the previous week. The Refinance Index has fallen 64.2 percent from its recent peak the week of May 3, 2013. The seasonally adjusted Purchase Index increased 2 percent from one week earlier.
...
The refinance share of mortgage activity decreased to 60 percent of total applications from 61 percent the previous week, which is the lowest share observed since April 2011. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.80 percent, the highest rate since April 2011, from 4.68 percent, with points decreasing to 0.41 from 0.42 (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.

Refinance activity has fallen sharply, decreasing in 14 of the last 16 weeks.

This index is down 64.2% over the last 16 weeks.   The last time the index declined this far was in late 2010 and early 2011 when mortgage increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%.  We've seen a similar increase over the last few months with the Ten Year Treasury yield up from 1.6% to over 2.7% today.

The second graph shows the MBA mortgage purchase index.   The purchase index has increased for the last two weeks, and three of the last four.

The 4-week average of the purchase index has generally been trending up over the last year (but down over the couple of months), and the 4-week average of the purchase index is up about 6.7% from a year ago. 

by Calculated Risk on 8/27/2013 08:45:00 PM

Just an update ... during the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic recovered to a new record high in 2012.

However convention attendance in 2012 was still about 21% below the peak level in 2006.  Here is the data from the Las Vegas Convention and Visitors Authority.  


Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale).   The numbers for 2013 are a projection based on data through June.

So far this year - through June - there were 19.9 million visitors to Las Vegas - slightly less than for the first six months of 2012. 

Convention attendance was at 2.9 million during the first half of 2013, for a pace over 5 million for the first time since 2008 - but still well below the record of 6.3 million in 2006.

Wednesday:
• 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. With higher mortgage rates, the refinance index has fallen sharply over the last few months. The key will be to watch the purchase application index.

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

by Calculated Risk on 8/27/2013 04:25:00 PM

From housing economist Tom Lawler:

Below is a table showing the latest YOY % changes in various entities’ home price indexes for the metro areas covered in today’s Case Shiller home price report, as well as “national” HPIs. The YOY changes are for the period ended in June, with Case-Shiller, FHFA expanded, and Zillow effectively being quarterly averages; CoreLogic a weighted 3-month moving average; and LPS and FNC being “June.” Zillow does not include foreclosure resales in constructing its HVI, while LPS’ HPI “reflects” non-distressed sales, as it “takes into account” price discounts for REO and short sales. FNC’s RPI is a “hedonic” price index, as is (pretty much) Zillow’s HVI. CoreLogic produces HPIs for all of the metro areas below, but only releases to the public the ones shown below. Note that in some cases (e.g., NY), Case-Shiller’s “metro area” definition differs from the other entities (it is broader).

The biggest “outliers” are the “hedonic” home price indexes, which attempt to take into account the characteristics of homes sold. FNC’s RPI for many metro areas seem “most strange” – the RPIs for DC and Portland showed virtually no change from a year ago, which just doesn’t seem right. And FNC’s “national” (100 metro area) RPI gain of 3.7% over the last year seems way too low.

Even if all of the metro/regional/state HPIs from these entities “matched up,” the various entities’ “national” HPIs would show different growth rates. Case-Shiller constructs a “national” HPI from Census division HPIs with weights based on each division’s share of the market value of the housing stock from Census 2000. FHFA constructs a “national” HPI using weights based on state shares of the housing stock in units using the latest available ACS data. CoreLogic does not “build up” a national HPI from regional HPIs, but instead aggregates all transactions across the county. Zillow’s HVI is a “median” home-value measure, I believe using all homes for which it has a “Zestimate.” I’m not rightly sure how LPS or FNC construct their “national” HPIs.

The method used to construct a “national” HPI from state/regional HPIs can have a material impact. As I noted last week, if CoreLogic used Census 2000 market value weight applied to its state HPIs, its “national” HPI for June would have been up 9.4% YOY, compared to the reported 11.9%. And if the FHFA had applied Census 2000 market value weights to its state HPIs, its “national” HPI for June would have bee up 8.1%, instead of the reported 7.6%. The Case Shiller “national” HPI for “June” (Q2) was up 10.1% YOY. Case-Shiller doesn’t produce state HPIs and doesn’t release its Census division HPIs to the public.

YOY % Change, Various Home Price Indexes ("June"/Q2 2013)
	Case-Shiller	FHFA Expanded	CoreLogic	LPS	FNC	Zillow
AZ-Phoenix	19.8%	21.2%	17.1%	16.6%	27.5%	22.0%
CA-Los Angeles	19.9%	18.3%	20.7%	18.8%	7.8%	19.7%
CA-San Diego	19.3%	17.5%	19.9%	18.0%	9.1%	21.8%
CA-San Francisco	24.5%	19.7%		23.9%	10.2%	26.3%
CO-Denver	9.4%	10.3%	10.5%	9.8%	8.8%	12.7%
DC-Washington	5.7%	9.9%	9.4%	7.7%	0.8%	7.0%
FL-Miami	14.8%	13.4%	13.4%	14.3%	5.8%	12.5%
FL-Tampa	11.1%	11.7%	9.4%	11.0%	5.9%	10.6%
GA-Atlanta	19.0%	18.6%	16.1%	13.0%	2.7%	6.5%
IL-Chicago	7.3%	6.7%	4.6%	6.8%	-1.0%	1.1%
MA-Boston	6.7%	7.5%		6.4%	3.0%	6.7%
MI-Detroit	16.4%	15.2%		11.3%	6.3%	15.1%
MN-Minneapolis	11.5%	10.2%	9.1%	8.4%	4.4%	11.7%
NC-Charlotte	7.8%	8.5%		6.3%	5.3%	1.9%
NV-Las Vegas	24.9%	24.5%		27.0%	18.6%	29.5%
NY-New York	3.3%	2.6%	7.2%	4.2%	0.2%	1.8%
OH-Cleveland	3.5%	3.1%		3.5%	0.9%	3.2%
OR-Portland	11.8%	13.8%	14.6%	10.3%	0.9%	13.3%
TX-Dallas	8.0%	9.0%	9.9%	6.5%	7.4%	6.0%
WA-Seattle	11.8%	14.9%	15.1%	11.9%	2.9%	13.0%
“National”	10.1%	7.6%	11.9%	8.4%	3.7%	5.6%

by Calculated Risk on 8/27/2013 01:44:00 PM

From the Richmond Fed: Manufacturing Sector Strengthened, Hiring Remained Modest

The composite index of manufacturing activity rebounded in August, climbing twenty-five points above the July reading to 14. The components of that index all rose this month, with the index for shipments jumping to 17 from the previous reading of −15 and the index for new orders moving to 16 from −15. ...

The index for the number of employees moved up to 6 in August following a flat reading a month ago. The indicator for the average manufacturing workweek also gained, picking up six points to post a reading of 8. In addition, average wage growth intensified, pushing the index to 13 from July's reading of 8.

Manufacturers were decidedly upbeat about business prospects for the next six months. The index for expected shipments rose to 36 from July's reading of 24, and the indicator for the volume of new orders added nine points to last month's index to finish the month at a reading of 33. ...
...
Manufacturers planned to increase hiring in the six months ahead; the marker for the number of employees picked up four points to settle at 9, while the index for the average workweek moved up to 10 from last month's reading of 8. Employers also anticipated robust wage growth, pushing that index to 28 in August from 21.
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through August), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through July (right axis).

All of the regional surveys showed expansion in August, and overall at about the same pace as in July.  The ISM index for July will be released next Tuesday, Sept 3rd.

by Calculated Risk on 8/27/2013 11:04:00 AM

Two key points:

• The Case-Shiller index released this morning was for June, and it is actually a 3 month of average prices in April, May and June. I think price increases have slowed recently based on agent reports (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases will not show up for several months in the Case-Shiller index because of the reporting lag and because of the three month average. I expect to see smaller year-over-year price increases going forward and some significant deceleration towards the end of the year. 

• It appears the Case-Shiller index is currently overstating price increases for most homeowners, both because of the handling of distressed sales and the weighting of some coastal areas.

I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation. 

Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 12.1% year-over-year in June

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through June) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to April 2004 levels, and the CoreLogic index (NSA) is back to August 2004.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 2000 levels, the Composite 20 index is back to November 2001, and the CoreLogic index back to March 2002.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q4 2000 levels, the Composite 20 index is back to April 2002 levels, and the CoreLogic index is back to December 2002.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 36% above January 2000.  Two cities - Denver and Dallas - are at new highs (no other Case-Shiller Comp 20 city is close).  Detroit prices are still below the January 2000 level.

by Calculated Risk on 8/27/2013 09:05:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for June ("June" is a 3 month average of April, May and June prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the Q2 National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Prices Continue Climbing in June 2013 According to the S&P/Case-Shiller Home Price Indices

Data through June 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1Home Price Indices ... showed that prices continue to increase. The National Index grew 7.1% in the second quarter and 10.1% over the last four quarters. The 10-City and 20-City Composites posted returns of 2.2% for June and 11.9% and 12.1% over 12 months. ...

All 20 cities posted gains on a monthly and annual basis. However, in only six cities were prices rising faster this month than last, compared to ten in May. Dallas and Denver reached new all-time highs as they did last month, with returns of +1.7% each in June. ...

“Overall, the report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened." [says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices]

All 20 cities showed positive monthly returns for at least the third consecutive month. Six cities – Charlotte, Cleveland, Las Vegas, Minneapolis, New York and Tampa – showed acceleration. Atlanta took the lead with a return of 3.4% as San Francisco dropped to +2.7% in June from +4.3% in May. New York posted a gain of 2.1%, its highest since July 2002.

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 24.1% from the peak, and up 1.1% in June (SA). The Composite 10 is up 15.1% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 23.4% from the peak, and up 0.9% (SA) in June. The Composite 20 is up 15.7% from the post-bubble low set in Jan 2012 (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 11.9% compared to June 2012.

The Composite 20 SA is up 12.1% compared to June 2012. This was the thirteen consecutive month with a year-over-year gain and it appears the YoY change might be starting to slow.

Prices increased (SA) in 15 of the 20 Case-Shiller cities in June seasonally adjusted. Prices in Las Vegas are off 50.2% from the peak, and prices in Denver and Dallas are at new highs.

This was close to the consensus forecast for a 12.2% YoY increase. I'll have more on prices later.