by Calculated Risk on 2/19/2014 04:41:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for January since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.4% compared to the rolling 12 months ending in December.   Outbound traffic was unchanged compared to 12 months ending in December.

Inbound traffic is increasing, and it appears outbound traffic is starting to pick up a little.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Inbound traffic was up 5% compared to January 2012 and outbound traffic was down slightly.

This suggests an increase in trade the trade deficit with Asia in January. 

by Calculated Risk on 2/19/2014 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, January 28-29, 2014 . Excerpt:

In their discussion of the path for monetary policy, most participants judged that the incoming information about the economy was broadly in line with their expectations and that a further modest step down in the pace of purchases was appropriate. A couple of participants observed that continued low readings on inflation and considerable slack in the labor market raised questions about the desirability of reducing the pace of purchases; these participants judged, however, that a pause in the reduction of purchases was not justified at this stage, especially in light of the strength of the economy in the second half of 2013. Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting. That said, a number of participants noted that if the economy deviated substantially from its expected path, the Committee should be prepared to respond with an appropriate adjustment to the trajectory of its purchases.

Participants agreed that, with the unemployment rate approaching 6-1/2 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed. A range of views was expressed about the form that such forward guidance might take. Some participants favored quantitative guidance along the lines of the existing thresholds, while others preferred a qualitative approach that would provide additional information regarding the factors that would guide the Committee's policy decisions. Several participants suggested that risks to financial stability should appear more explicitly in the list of factors that would guide decisions about the federal funds rate once the unemployment rate threshold is crossed, and several participants argued that the forward guidance should give greater emphasis to the Committee's willingness to keep rates low if inflation were to remain persistently below the Committee's 2 percent longer-run objective. Additional proposals included relying to a greater extent on the Summary of Economic Projections as a communications device and including in the guidance an indication of the Committee's willingness to adjust policy to lean against undesired changes in financial conditions.

A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon. One participant cited evidence that the equilibrium real interest rate had moved higher, and a couple of them noted that some standard policy rules tended to suggest that the federal funds rate should be raised above its effective lower bound before the middle of this year. Other participants, however, suggested that prescriptions from standard policy rules were not appropriate in current circumstances, either because the target federal funds rate had been constrained by the lower bound for some time or because the equilibrium real rate of interest was likely still being held down by various factors, including the lingering effects of the financial crisis, and was significantly below the value of the longer-run rate built into standard policy rules.
emphasis added

A few notes: 1) Tapering will continue unless the economy deviates "substantially from its expected path". 2) There is "a clear presumption in favor" of additional tapering. 3) the forward guidance will be changed soon, probably at the next meeting.

by Calculated Risk on 2/19/2014 12:28:00 PM

Is the housing recovery over? Housing starts were down in January (and down slightly year-over-year). The MBA mortgage purchase index is at the lowest level since September 2011. Existing home sales were weak in January (to be released tomorrow). Oh no. Oh no. Is the sky falling?

Short answer: no.

There are several reasons for the recent weakness: weather (probably a small factor), higher mortgage rates, and higher prices (homebuilders raised prices sharply in 2013).  But the fundamentals of household formation and housing supply suggest a significant increase in housing starts over the next few years.

So I'm not too concerned about short term weakness.  As always, fundamentals will eventually rule, and I think that means housing starts will continue to increase for the next few years.

A few key points:

• Housing starts were revised up for 2013, and starts increased 18.7% in 2013 compared to 2012 (revised up from 18.3%).

• Even after increasing 28% in 2012 and 18% in 2013, the 927 thousand housing starts in 2013 were the sixth lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2008 through 2012).   Also, this was the fifth lowest year for single family starts since 1959 (only 2009 through 2012 were lower).   See bottom graphs for single family starts!

• 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 probably increase another 50%+ from the 2013 level.


The following table shows annual starts (total and single family) since 2005:

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.5	24.4%
2013	926.7	18.7%	618.3	15.5%

I expect another solid increase for housing starts in 2014.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family completions in 2014, but probably still below the 1997 through 2007 level of multi-family completions.  Multi-family starts will probably move more sideways in 2014.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts have been moving up, and completions have followed. 

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 2/19/2014 09:55:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Slight Rebound for Architecture Billings Index

ter consecutive months of contracting demand for design services, there was a modest uptick in the Architecture Billings Index (ABI). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 50.4, up from a mark of 48.5 in December. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.5, down a bit from the reading of 59.2 the previous month.

“There is enough optimism in the marketplace that business conditions should return to steady growth as the year progresses,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The suspension of the debt ceiling should ease some anxiety around projects for the federal government, at least for the time being. However, private sector spending should lead the construction upturn this year, which will depend more on employment growth and continued improvement in the overall economy."

Regional averages: South (53.5),West (51.1), Midwest (46.5), Northeast (43.6) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in January, up from 48.5 in December. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion during 15 of the last 18 months.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  Even when positive, this index was not as strong as during the '90s - or during the bubble years of 2004 through 2006 - because the vacancy rates are still high for many CRE sectors.  However, the readings over the last year suggest some increase in CRE investment in 2014.

by Calculated Risk on 2/19/2014 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in January were at a seasonally adjusted annual rate of 880,000. This is 16.0 percent below the revised December estimate of 1,048,000 and is 2.0 percent below the January 2013 rate of 898,000.

Single-family housing starts in January were at a rate of 573,000; this is 15.9 percent below the revised December figure of 681,000. The January rate for units in buildings with five units or more was 300,000.
emphasis added

Building Permits:
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 937,000. This is 5.4 percent below the revised December rate of 991,000, but is 2.4 percent above the January 2013 estimate of 915,000.

Single-family authorizations in January were at a rate of 602,000; this is 1.3 percent below the revised December figure of 610,000. Authorizations of units in buildings with five units or more were at a rate of 309,000 in January.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased in January (Multi-family is volatile month-to-month).

Single-family starts (blue) also decreased in January.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years.

This was below expectations of 950 thousand starts in January.  Note: Starts for December were revised up to 1.048 million from 999 thousand.    I'll have more later.

by Calculated Risk on 2/19/2014 07:01:00 AM

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

Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 14, 2014. ...

The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier and is at its lowest level since September of 2011. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.50 percent from 4.45 percent, with points decreasing to 0.26 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.45 percent from 4.40 percent, with points decreasing to 0.11 from 0.14 (including the origination fee) for 80 percent LTV loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 68% from the levels in May 2013.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 15% from a year ago - and the weekly purchase index is at the lowest level since September 2011.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Note: Interesting that Jumbo rates are still below conforming rates.

by Calculated Risk on 2/18/2014 07:07:00 PM

A reminder of a friendly bet I made with NDD on housing starts in 2014:

If starts or sales are up at least 20% YoY in any month in 2014, [NDD] will make a $100 donation to the charity of Bill's choice, which he has designated as the Memorial Fund in honor of his late co-blogger, Tanta. If housing permits or starts are down 100,000 YoY at least once in 2014, he make a $100 donation to the charity of my choice, which is the Alzheimer's Association.

Of course, with the terms of the bet, we could both "win" at some point during the year.

In January 2013, starts were at a 898 thousand seasonally adjusted annual rate (SAAR). For me to win, starts would have to be up 20% or at 1.078 million SAAR in January (very unlikely due to the weather). For NDD to win, starts would have to fall to 798 thousand SAAR. NDD could also "win" if permits fall to 815 thousand SAAR from 915 thousand SAAR in January 2013.

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

• At 8:30 AM, Housing Starts for January. Total housing starts were at 999 thousand (SAAR) in December. Single family starts were at 667 thousand SAAR in December. The consensus is for total housing starts to decrease to 950 thousand (SAAR) in January.

• Also at 8:30 AM, the Producer Price Index for January. The consensus is for a 0.2% decrease in producer prices (and 0.2% increase in core PPI).

• During the day, the AIA's Architecture Billings Index for January (a leading indicator for commercial real estate).

• At 2:00 PM, the FOMC Minutes for the Meeting of January 28-29, 2014.

by Calculated Risk on 2/18/2014 02:14:00 PM

This morning, the NY Fed released their Q4 Household Debt and Credit Report. The report showed that total household debt is 9.1% below the Q3 2008 peak. Mortgage debt is down 13.4% from the peak, and Home Equity revolving debt is down 25.9%. This is nominal dollars.

If we look at real dollars (inflation adjusted using CPI from the BLS), then total debt is down 16.9% since 2008, mortgage debt down 20.7%, home equity debt down 32.6%, auto debt down 12.2%, and credit card debt down 27.9%. Only student debt is at a new high (up 77% since Q3 2008 in nominal terms).

The following graph (not from the NY Fed) shows household debt in real terms.

Click on graph for larger image.

This household deleveraging was a key reason the recovery was slow, and now it appears the deleveraging is over.

This is a significant decline in total household debt, especially for mortgage, home equity, and credit card debt (student debt has increased).

by Calculated Risk on 2/18/2014 11:00:00 AM

Here is the Q4 report: Household Debt and Credit Report

Aggregate consumer debt increased in the fourth quarter by $241 billion, the largest quarter to quarter increase seen since the third quarter of 2007. As of December 31, 2013, total consumer indebtedness was $11.52 trillion, up by 2.1% from its level in the third quarter of 2013. The four quarters ending on December 31, 2013 were the first since late 2008 to register an increase ($180 billion or 1.6%) in total debt outstanding. Nonetheless, overall consumer debt remains 9.1% below its 2008Q3 peak of $12.68 trillion.

Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3%, with gains of $18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased in Q4.

This suggests households (in the aggregate) may be near the end of deleveraging.  If so, this is a significant change that started mid-2013.

The second graph shows the percent of debt in delinquency. The percent of delinquent debt is steadily declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). 

From the NY Fed:

Delinquency rates improved for most loan types in 2013Q4. As of December 31, 7.1% of outstanding debt was in some stage of delinquency, compared with 7.4% in 2013Q3. About $820 billion of debt is delinquent, with $580 billion seriously delinquent (at least 90 days late or “severely derogatory”).

Delinquency transition rates for current mortgage accounts are near pre-crisis levels, with 1.48% of current mortgage balances transitioning into delinquency.

Here is the press release from the NY Fed: New York Fed Report Shows Households Adding Debt

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

by Calculated Risk on 2/18/2014 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 46 in February, down from 56 in January. Any number below 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Poor Weather Puts a Damper on Builder Confidence in February

Unusually severe weather conditions across much of the nation along with continued concerns over the cost and availability of labor and lots resulted in builder confidence in the market for newly-built, single-family homes to post a 10-point drop to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

“Significant weather conditions across most of the country led to a decline in buyer traffic last month,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.”

“Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry,” said NAHB Chief Economist David Crowe. “The weather also hurt retail and auto sales and this had a contributing effect on demand for new homes.”
...
All three of the major HMI components declined in February. The component gauging current sales conditions fell 11 points to 51, the component gauging sales expectations in the next six months declined six points to 54 and the component measuring buyer traffic dropped nine points to 31.

Looking at three-month moving averages for regional HMI scores, the West was unchanged at 63 in February while the Midwest registered a one-point decline to 57, the South registered a three-point decline to 53 and the Northeast posted a four-point decline to 38.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was the first reading below 50 since May 2013.