by Calculated Risk on 8/27/2014 10:25:00 AM

The Congressional Budget Office (CBO) released new budget projections today An Update to the Budget and Economic Outlook: 2014 to 2024. The projected budget deficits have been reduced for most of the next ten years, although the projected deficit for 2014 has been revised up slightly (by $14 billion).

NOTE: In the previous update, the CBO revised down their projection of the deficit for fiscal 2014 from 3.7% to just under 2.9% of GDP.

From the CBO:

The federal budget deficit for fiscal year 2014 will amount to $506 billion, CBO estimates, roughly $170 billion lower than the shortfall recorded in 2013. At 2.9 percent of gross domestic product (GDP), this year's deficit will be much smaller than those of recent years (which reached almost 10 percent of GDP in 2009) and slightly below the average of federal deficits over the past 40 years.
...
CBO's current economic projections differ in some respects from the ones issued in February 2014. The agency has significantly lowered its projection of growth in real GDP for 2014, reflecting surprising economic weakness in the first half of the year. However, the level of real GDP over most of the coming decade is projected to be only modestly lower than estimated in February. In addition, CBO now anticipates lower interest rates throughout the projection period and a lower unemployment rate for the next six years.
emphasis added

The CBO projects the deficit will decline further in 2015, and will be at or below 3% of GDP through fiscal 2019.  Then the deficit will slowly increase.

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 ten years based on estimates from the CBO.

The CBO revised down their deficit projections for fiscal years 2017 through 2024.

by Calculated Risk on 8/27/2014 07:01:00 AM

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

Mortgage applications increased 2.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 22, 2014. ...

The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.28 percent from 4.29 percent, with points decreasing to 0.25 from 0.26 (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.

The refinance index is down 73% from the levels in May 2013.

As expected, refinance activity is very low this year.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 11% from a year ago.

by Calculated Risk on 8/26/2014 08:31:00 PM

The Case-Shiller house price indexes for June were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

From Zillow: Case-Shiller Slowdown Forecasted to Continue

The Case-Shiller data for June 2014 came out this morning, and based on this information and the July 2014 Zillow Home Value Index (ZHVI, released August 21), we predict that next month’s Case-Shiller data (July 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index increased by 7.0 percent and the NSA 10-City Composite Home Price Index increased by 6.9 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from June to July will be 0.1 percent for the 20-City Composite Index and flat for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for July will not be released until Tuesday, September 30.

So the Case-Shiller index will probably show a lower year-over-year gain in July than in June (8.1% year-over-year).

Zillow July 2014 Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	July 2013	176.39	172.88	162.38	158.96
Case-Shiller (last month)	June 2014	187.19	185.57	172.33	170.69
Zillow Forecast	YoY	6.9%	6.9%	7.0%	7.0%
	MoM	0.7%	0.0%	0.8%	0.1%
Zillow Forecasts1		188.5	185.2	173.7	170.5
Current Post Bubble Low		146.45	149.91	134.07	137.13
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		28.7%	23.5%	29.6%	24.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 8/26/2014 04:45:00 PM

• Starting this month, S&P is releasing the Case-Shiller National Index on a monthly basis. This probably means most reporting of a "headline number" will be switched from the Case-Shiller Composite 20 to the National Index.

• On a method to improve the seasonal factors, see Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced since the housing bust.

Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a larger than normal seasonal pattern mostly because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter.

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller National index since 1987 (both through Jnue).   The seasonal pattern was smaller back in the '90s and early '00s, and increased since the bubble burst.

It appears we've already seen the strongest month this year (NSA) for both Case-Shiller NSA and CoreLogic.  This suggests both indexes will turn negative seasonally (NSA) earlier this year than the previous two years - perhaps in the August reports.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

It appears the seasonal factor has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels (Kolko's article has more on this).

by Calculated Risk on 8/26/2014 02:11:00 PM

From Zillow: High Negative Equity Causing Generational Housing Gridlock

According to the second quarter Zillow Negative Equity Report, the national negative equity rate continued to decline in 2014 Q2, falling to 17 percent, down 14.4 percentage points from its peak (31.4 percent) in the first quarter of 2012. Negative equity has fallen for nine consecutive quarters as home values have risen. However, more than 8.7 million homeowners with a mortgage still remain underwater
emphasis added

The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q2 2014 compared to Q2 2013.

Click on graph for larger image.

From Zillow:

Figure 6 shows the loan-to-value (LTV) distribution for homeowners with a mortgage in 2014 Q2 versus 2013 Q2. The bulk of underwater homeowners, roughly 7.9 percent, are underwater by up to 20 percent of their loan value and will soon cross over into positive equity territory.

Almost half of the borrowers with negative equity have a LTV of 100% to 120% (7.9% in Q2 2014). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140% (about 5.7% of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Note: CoreLogic will release their Q2 negative equity report in the next couple of weeks. For Q1, CoreLogic reported there were 6.3 million properties with negative equity, and that will be down further in Q2 2014.