by Calculated Risk on 10/02/2014 05:04:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 1.98% from 2.02% in July. Freddie's rate is down from 2.64% in August 2013, and this is the lowest level since January 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". 

Note: Fannie Mae reported earlier this week that the Single-Family Serious Delinquency rate declined slightly in August to 1.99% from 2.00% in July.

Click on graph for larger image

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

The serious delinquency rate has fallen 0.66 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until some time in 2016.

Note: 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. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed even in 2016 (mostly in judicial foreclosure states).

by Calculated Risk on 10/02/2014 01:45:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for September. The consensus, according to Bloomberg, is for an increase of 215,000 non-farm payroll jobs in September (range of estimates between 185,000 and 289,000), and for the unemployment rate to be unchanged at 6.1%.

The BLS reported 142,000 jobs added in August.

Here is a summary of recent data:

• The ADP employment report showed an increase of 213,000 private sector payroll jobs in September. This was above expectations of 200,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly above expectations.

• The ISM manufacturing employment index decreased in September to 54.6%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 6,000 in September. The ADP report indicated a 35,000 increase for manufacturing jobs in September.

The ISM non-manufacturing employment index for September will be released on Friday after the employment report.

• Initial weekly unemployment claims averaged close to 295,000 in September, down from 300,000 in August. For the BLS reference week (includes the 12th of the month), initial claims were at 281,000; this was down from 299,000 during the reference week in August.

The lower reference week reading suggests slightly fewer layoffs in September than in August.

• The final September Reuters / University of Michigan consumer sentiment index increased to 84.6 from the August reading of 82.5. This is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 10,000 increase in small business employment in September.

And from NFIB: NFIB Jobs Statement: Small Businesses Report Stronger Hiring, But Expectations Remain Muted "NFIB owners increased employment by an average of 0.24 workers per firm in September (seasonally adjusted), the twelfth positive month in a row and the largest gain this year."

• Special circumstance: In August, a strike at Market Basket in New England negatively impacted the employment report. From BLS Commissioner Erica Groshen:

Within retail, employment declined in food and beverage stores (-17,000); this industry was impacted by employment disruptions at a grocery store chain in New England.

The disruption ended quickly, and food and beverage employment should bounce back in September.

• Conclusion: Below is a table showing several employment indicators and the initial BLS report (the first column is the revised employment added). A few key points:

1) Most of the revisions this year have been up (average about 15,000). I expect employment for August will be revised up too (over the last 4 years, August has eventually been revised up an average of 55,000 jobs).

2) Unfortunately none of the indicators below is very good at predicting the initial BLS employment report.  

3) September tends to be revised up sharply (like August, up an average of 55,000 jobs over the last 4 years).  This suggests the BLS might underestimate employment in September again.  However some of the recent initial low estimates for September  might have been because the seasonal factors were skewed by the deep recession (this effect fades over time).

4) In general it looks like this should be another 200+ month (based on ADP, unemployment claims, and small business hiring).

5) As mentioned above, there was a labor disruption in August that was resolved quickly.  So this should boost the September employment report.

So I'll take the over again (above 215,000).  But I sure was wrong last month!

Employment Indicators (000s)
	BLS Revised	BLS Initial	ADP Initial	ISM	Weekly Claims Reference Week1	Intuit Small Business
Jan	144	113	175	236	329	10
Feb	222	175	139	-6	334	0
Mar	203	192	191	153	323	0
Apr	304	288	220	NA	320	25
May	229	217	179	130	327	35
Jun	267	288	281	NA	314	20
Jul	212	209	218	NA	303	15
Aug		142	204	285	299	0
Sep		Friday	213	NA	281	10
1Lower is better for Unemployment Claims

by Calculated Risk on 10/02/2014 10:46:00 AM

Reis reported that the apartment vacancy rate increased in Q3 to 4.2% from 4.1% in Q2.  In Q3 2013 (a year ago), the vacancy rate was at 4.3%, and the rate peaked at 8.0% at the end of 2009.

Some comments from Reis Senior Economist Ryan Severino:

The national vacancy rate increased by 10 basis points to 4.2% during the third quarter. This is the first quarterly increase in vacancy since the fourth quarter of 2009. This is something that we have been warning about for some time. The national vacancy rate has been below 5.5% since the third quarter of 2011, a virtually unprecedented run. Ultimately, market conditions that tight were going to serve as a catalyst for new construction activity. Although the surge in construction occurred a bit late, due to the fallout from the Great Recession, it is now arriving. New construction continues to increase over time and will likely reach a post‐recession high this year. Meanwhile, demand has clearly declined from levels observed during 2010 and 2011. This type of slowing is expected, but demand should remain robust. The number of 20‐ to 30‐year olds, the prime rental cohort, will not peak until 2018 which should keep demand rather stout. However, the apartment market, like virtually all property types, is cyclical, and has a propensity to overbuild, even when things are booming. With construction anticipated to outpace net absorption over the next four years, we expect the national vacancy rate to slowly drift upward. However, we do not foresee a massive expansion in vacancy rates of the sort that accompanies recessions.
...
Nonetheless, 4.2% is still an incredibly tight market environment. Even as vacancy drifts slowly higher in the coming years, we do not anticipate that it will not surpass 5% by the end of the forecast horizon in 2018.

Construction overtook demand by a relatively wide margin during the third quarter, with a difference of 8,822 units. The 46,055 units delivered were just behind the fourth quarter of 2013's 47,950 units which are a post‐recession high. Moreover, completions this quarter were higher than completions for all of 2011 at construction's trough. In retrospect, the pullback in completions during the early stages of this year was at least partially attributable to the inclement weather experienced throughout much of the country. Once the weather improved, construction levels accelerated quickly. The market remains posed to deliver the highest level of new completions since 1999 when the economy was booming. That stands in contrast to today when economic growth is accelerating, but hardly booming.

However, net absorption has not ground to a halt. Though down from levels during 2010 and 2011, year to date, net absorption is actually tracking ahead of last year's pace, demonstrating just how strong demand remains ‐ despite the fact that the recovery in demand began four and a half years ago. Demographics are supporting demand. The most common age in the United States is 22, followed closely by 23, and then 21. There are a lot of young people in the market that are predominantly renters and not homeowners. This will continue to provide significant demand, even as new supply growth accelerates.
...
Asking and effective rents both grew by 1.0% during the third quarter. This is an increase from the second quarter and reflective of the seasonality often observed in the apartment market. Rents tend to grow the fastest during warmer months which are more conducive to moving and greater demand for apartment units, all else being equal. Year‐over‐year growth in rents appears to have stalled a bit this quarter. The 12‐month change in rent growth for asking and effective rents is 3.2% and 3.4%, respectively.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.


Apartment vacancy data courtesy of Reis.

by Calculated Risk on 10/02/2014 08:35:00 AM

The DOL reports:

In the week ending September 27, the advance figure for seasonally adjusted initial claims was 287,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 293,000 to 295,000. The 4-week moving average was 294,750, a decrease of 4,250 from the previous week's revised average. The previous week's average was revised up by 500 from 298,500 to 299,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 295,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

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 decreased to 294,750.

This was below the consensus forecast of 297,000 and in the normal range for an economic expansion.

by Calculated Risk on 10/01/2014 08:56:00 PM

An interesting article on foreign buyers of U.S. real estate from Dionne Searceyoct at the NY Times: Indians Join the Wave of Investors in Condos and Homes in the U.S.

Foreign buyers now make up 7 percent of total existing-home sales ... Of those, Indians represent 6 percent of the purchases, spending $5.8 billion, up from $3.9 billion over the same period a year ago and on par with buyers from Britain.

Canadians have long bought American property and still do so in big numbers, with purchases centered for the most part in Arizona, Florida and more recently in Las Vegas. Canada still accounts for the largest share of buyers, but China is the fastest-growing source of clients, according to the realtors’ group.

And Chinese buyers are bigger spenders. Their real estate purchases in the United States nearly doubled from last April to last March, increasing to $22 billion from the previous period. They accounted for nearly a quarter of all international sales in the current period.

Thursday:
• Early, Reis Q3 2014 Apartment Survey of rents and vacancy rates.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 297 thousand from 293 thousand.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is for a 9.4 decrease in August orders.