by Calculated Risk on 10/31/2013 09:08:00 PM

From Freddie Mac: Fixed Mortgage Rates Decline for Second Consecutive Week

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates declining for the second consecutive week amid recent data showing softening in the housing market. Fixed mortgage rates are at their lowest levels since June.

30-year fixed-rate mortgage (FRM) averaged 4.10 percent with an average 0.7 point for the week ending October 31, 2013, down from last week when it averaged 4.13 percent. A year ago at this time, the 30-year FRM averaged 3.39 percent.

"Fixed mortgage rates eased further leading up to the Federal Reserve's (Fed) October 30th monetary policy announcement. The Fed saw improvement in economic activity and labor market conditions since it began its asset purchase program, but noted the recovery in the housing market slowed somewhat in recent months and unemployment remains elevated. As a result, there was no policy change which should help sustain low mortgage rates in the near future." [said Frank Nothaft, vice president and chief economist, Freddie Mac].
emphasis added

30 year rates peaked this year at 4.58% on August 22nd in the Freddie Mac survey. This is the lowest level since late June.

Friday:
• All day, Light vehicle sales for October. The consensus is for light vehicle sales to increase to 15.4 million SAAR in October (Seasonally Adjusted Annual Rate) from 15.2 million SAAR in September.

• At 9:00 AM, the Markit US PMI Manufacturing Index for October.

• At 10:00 AM ET, the ISM Manufacturing Index for October. The consensus is for a decrease to 55.0 from 56.2 in September. The ISM manufacturing index indicated expansion in September at 56.2%. The employment index was at 55.4%, and the new orders index was at 60.5%.

NOTE: The employment situation report for October that was originally scheduled for release on November 1st has been delayed until the following Friday, November 8th.

by Calculated Risk on 10/31/2013 05:32:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in September to 2.55% from 2.61% in August. The serious delinquency rate is down from 3.41% in September 2012, and this is the lowest level since December 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie's rate is down from 3.37% in September 2012, and this is at the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Click on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.86 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in about 2 years. Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

by Calculated Risk on 10/31/2013 04:09:00 PM

The Case-Shiller house price indexes for August were released Tuesday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ...

From Zillow: Sept. Case-Shiller Expected to Continue Showing Eye-Popping Annual Appreciation

The Case-Shiller data for August came out this morning, and based on this information and the September 2013 Zillow Home Value Index (ZHVI, released Oct. 17), we predict that next month’s Case-Shiller data (September 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.2 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from August to September will be 0.8 percent for both the 20-City Composite and 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 September will not be released until Tuesday, Nov. 26.
...
The Zillow Home Value index showed the first signs of moderation in home value appreciation, with several of the largest metros showing month-over-month declines in September. Case-Shiller indices have also shown slowdowns in monthly appreciation but have not yet recorded monthly declines.

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

Zillow September Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Sept 2012	158.94	155.66	146.23	143.20
Case-Shiller (last month)	Aug 2013	178.75	174.59	164.53	160.55
Zillow Forecast	YoY	13.2%	13.2%	13.2%	13.2%
	MoM	0.6%	0.8%	0.6%	0.8%
Zillow Forecasts1		179.9	176.1	165.5	162.0
Current Post Bubble Low		146.45	149.63	134.07	136.87
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		22.8%	17.7%	23.5%	18.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 10/31/2013 12:59:00 PM

Goldman Sach chief economist Jan Hatzius wrote today (research note): How Much Risk to Homebuilding? A few excerpts:

The housing news has deteriorated recently across a broad set of indicators, and the FOMC accordingly downgraded its assessment of the housing market in Wednesday's post-meeting statement. How much should we worry about our forecast that residential investment will continue to grow 10-15% and directly contribute 1/2 percentage point to real GDP growth next year?

The risks to our housing forecast are on the downside in the near term, but there are three reasons why we still take a positive view beyond the next 1-2 quarters. First, there is a clearly identifiable reason for the recent weakness, namely the sharp increase in mortgage rates. Some of this increase has reversed recently, and barring another shock the impact should be mostly complete by early 2014.

Second, the fundamental supply-demand picture for housing still looks positive. If the population grows at the rates projected by the Census Bureau and the size of the average household trends sideways to slightly lower--in line with historical trends--we estimate that household formation should climb to 1-1.3 million and steady-state housing demand to 1.3-1.6 million. This implies significant upside for housing starts from the current 900,000 level once the remaining excess supply has been eliminated

Third, while home sales and starts have disappointed recently, house prices have continued to rise at double-digit rates, with few signs of deceleration. This suggests that the supply/demand balance in the housing market still looks favorable. That said, we continue to expect that home price appreciation will slow over the next year.

Clearly housing has slowed recently. This has shown up in housing starts and new home sales, and the slowdown is also evident in home builder reports. However I think this slowdown is temporary, and I expect the housing recovery to continue in 2014.

Click on graph for larger image.

This graph shows single and total housing starts through August (the September and October reports will be both released on November 26th).

There has been a dip in housing starts recently, but I think starts are still closer to the bottom than the next cycle top.  I agree with Hatzius that starts will continue to increase over the next several years - and this will be a key driver for economic growth.

by Calculated Risk on 10/31/2013 09:48:00 AM

From the Chicago ISM:

October 2013:

The October Chicago Business Barometer rose to 65.9 in October from 55.7 in September, led by double digit gains in New Orders, Production and Order Backlogs. October’s gain placed the Barometer at the highest level since March 2011 with companies seemingly unaffected by the government shutdown.

New Orders soared to their highest level in nine years, adding to two prior months of gains while Production expanded to its highest level since February 2011.

Order Backlogs leapt out of a contractionary phase to the highest since March 2011. In line with expansion in New Orders and Production, Employment rose to its highest since June 2013, but remained well below the level of New Orders and Production.

Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The government might have shut down but Chicago area companies powered ahead in October as orders and production surged.”

“While it is a little surprising to see such a large rise in activity, the consistent increase in the Barometer over the past four months suggests the recovery is gaining traction,” he added.

This was well above the consensus estimate of 55.0.

by Calculated Risk on 10/31/2013 08:34:00 AM

The DOL reports:

In the week ending October 26, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The 4-week moving average was 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250.

The previous week was unrevised at 350,000.

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 356,250 - the highest level since April.

Some of the recent increase was due to processing problems in California (now resolved) and some probably related to the government shutdown. The four-week average will probably decline next week.

by Calculated Risk on 10/30/2013 08:49:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 350 thousand last week.

• At 9:45 AM, the Chicago Purchasing Managers Index for October. The consensus is for a decrease to 55.0, down from 55.7 in September.

The Treasury released the Fiscal 2013 Final Monthly Treasury Statement. As expected, the Government ran a $75 billion surplus in September (end of fiscal year), and the budget deficit in 2013 declined sharply to 4.1% of GDP from 6.8% of GDP in fiscal 2012.

Click on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next nine years based on estimates from the CBO.  NOTE: This includes updated GDP estimates from the BEA. 

The deficit should decline further over the next couple of years (I think the CBO is pessimistic on 2014).

After 2015, the deficit will start to increase again according to the CBO, but there is no urgent need to reduce the deficit over the next few years.

by Calculated Risk on 10/30/2013 06:15:00 PM

From the FDIC: First Federal Bank of Florida, Lake City, Florida, Assumes All of the Deposits of Bank of Jackson County, Graceville, Florida

As of June 30, 2013 Bank of Jackson County had approximately $25.5 million in total assets and $25.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.1 million. ... Bank of Jackson County is the 23rd FDIC-insured institution to fail in the nation this year, and the fourth in Florida.

Is it Friday?  No, just an unusual mid-week bank failure.

by Calculated Risk on 10/30/2013 04:41:00 PM

With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2014.

Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (1.5% increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U.

The contribution and benefit base will be $117,000 in 2014.

SPECIAL NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen in the next year or two, and the switch would impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained.

If CPI-chained was used instead of CPI-W, the increase would be 1.45% (probably rounded up to 1.5%).  CPI-chained would have minimal impact on any one year, but would reduce benefits over time.

by Calculated Risk on 10/30/2013 02:00:00 PM

About as expected ...

FOMC Statement:

Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
emphasis added