by Calculated Risk on 11/25/2014 04:13:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 1.91% from 1.96% in September. Freddie's rate is down from 2.48% in October 2013, and this is the lowest level since December 2008. 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 will report their Single-Family Serious Delinquency rate for October in a few days.

Click on graph for larger image

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

The serious delinquency rate has fallen 0.57 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 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 sales for perhaps 2 more years (mostly in judicial foreclosure states).

by Calculated Risk on 11/25/2014 01:11:00 PM

The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.9% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.8% - also the slowest YoY increase since October 2012.

Looking forward, I expect the indexes to slow further on a YoY basis, however: 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us.

This slowdown was expected by several key analysts, and I think it is good news.  As Zillow chief economist Stan Humphries said today:

“The days of double-digit home value appreciation continue to rapidly fade away as more inventory comes on line, and the market is becoming more balanced between buyers and sellers,” said Zillow Chief Economist Dr. Stan Humphries. “Like a perfectly prepared Thanksgiving turkey, it’s important for things to cool off a bit in the housing market, because too-fast appreciation risks burning both buyers and sellers. In this more sedate environment, buyers can take more time to find the right deal for them, and sellers can rest assured they won’t be left without a seat at the table when they turn around and become buyers. This slowdown is a critical step on the road back to a normal housing market, and as we approach the end of 2014, the housing market has plenty to be thankful for.”
emphasis added

In the earlier post, I graphed nominal house prices, but it is also 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 $278,600 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 10.4% below the bubble peak.   However, in real terms, the National index is still about 25% below the bubble peak.

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA) is back to March 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to October 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

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 September 2002 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to March 2003.

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 February 2003 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to May 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels - and maybe moving a little sideways now.

by Calculated Risk on 11/25/2014 11:00:00 AM

Here is the Q3 report: Household Debt and Credit Report. From the NY Fed:

Aggregate household debt balances increased slightly in the 3rd quarter of 2014. As of September 30, 2014, total household indebtedness was $11.71 trillion, up by 0.7% from its level in the second quarter of 2014, an increase of $78 billion. Overall household debt still remains 7.6% below its 2008Q3 peak of $12.68 trillion.

Mortgages, the largest component of household debt, edged up by 0.4%. Mortgage balances shown on consumer credit reports stand at $8.13 trillion, up by $35 billion from their level in the second quarter. Balances on home equity lines of credit (HELOC) dropped by $9 billion (1.7%) in the third quarter and now stand at $512 billion. Non-housing debt balances increased by 1.7 %, boosted by gains in all categories. Auto loan balances increased by $29 billion; student loan balances increased by $8 billion; credit card balances increased by $11 billion.

New extensions increased for auto loans and credit cards, but were roughly flat for both mortgages and HELOCs. There were $105 billion in new auto loan originations, the highest volume since 2005Q3. The aggregate credit card limit continued to increase, and is up by 0.9% from the previous quarter. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinanced mortgages, increased slightly to $337 billion but remain low by historical standards. HELOC limits were flat, down by 0.4%.

Overall delinquency rates were flat overall in 2014Q3 As of September 30, 6.3% of outstanding debt was in some stage of delinquency, compared with 6.2% in 2014Q2. About $732 billion of debt is delinquent, with $506 billion seriously delinquent (at least 90 days late or “severely derogatory”).
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased slightly in Q3.  Household debt peaked in 2008, and bottomed in Q2 2013.

The recent increase in debt suggests households (in the aggregate)  deleveraging is over.  Also from the NY Fed: Household Debt Balances Increase as Deleveraging Period Concludes

Total cash flow from mortgage debt and nonmortgage debt combined (black dotted line) has turned slightly positive during the past four quarters, ending a five-year period of negative values, suggesting that, by this measure, the deleveraging process has ended; households have begun to use credit to supplement their cash flow again.

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

The overall delinquency rate increased slightly to 6.3% in Q3, from 6.2% in Q2.   However the slight increase was in the less than 30 day category, and is not a concern.

The Severely Derogatory (red) rate has fallen to 2.18%, the lowest since Q1 2008.

The 120+ days late (orange) rate has declined to 1.82%, the lowest since Q2 2008.

Short term delinquencies are back to normal levels.

Here is the press release from the NY Fed: New York Fed Report Shows Household Debt Edges Higher

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

by Calculated Risk on 11/25/2014 09:14:00 AM

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

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

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

From S&P: Broad-based Slowdown for Home Prices According to the S&P/Case-Shiller Home Price Indices

S&P Dow Jones Indices today released the September 2014 index data for the S&P/Case-Shiller Home Price Indices ... Results show that home prices continue to decelerate. The 10-City Composite gained 4.8% year-over-year, down from 5.5% in August. The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.

The National and Composite Indices were both slightly negative in September. Both the 10 and 20-City Composites reported a slight downturn while the National Index posted a -0.1% change for the month. Charlotte and Miami led all cities in September with increases of 0.6%. Atlanta and Washington D.C. offset those gains by reporting decreases of 0.3% and 0.4%. ...

The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.8% annual gain in September 2014. The 10- and 20-City Composites reported year-over-year increases of 4.8% and 4.9%.

Click on graph for larger image.

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

The Composite 10 index is off 18.5% from the peak, and up 0.3% in September (SA). The Composite 10 is up 23.3% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 17.6% from the peak, and up 0.3% (SA) in September. The Composite 20 is up 24.2% from the post-bubble low set in Jan 2012 (SA).

The National index is off 10.4% from the peak, and up 0.7% (SA) in September.  The National index is up 21.0% from the post-bubble low set in Dec 2012 (SA).

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

The Composite 10 SA is up 4.9% compared to September 2013.

The Composite 20 SA is up 4.9% compared to September 2013.

The National index SA is up 4.8% compared to September 2013.

Prices increased (SA) in 16 of the 20 Case-Shiller cities in September seasonally adjusted.  (Prices increased in 9 of the 20 cities NSA)  Prices in Las Vegas are off 42.3% from the peak, and prices in Denver and Dallas are at new highs (SA).

This was above than the consensus forecast for a 4.5% YoY increase for the National index, and suggests a further slowdown in price increases. I'll have more on house prices later.

by Calculated Risk on 11/25/2014 08:36:00 AM

From the BEA: Gross Domestic Product: Third Quarter 2014 (Second Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.9 percent in the third quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent. With the second estimate for the third quarter, private inventory investment decreased less than previously estimated, and both personal consumption expenditures (PCE) and nonresidential fixed investment increased more. In contrast, exports increased less than previously estimated.

The increase in real GDP in the third quarter reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

Here is a Comparison of Second and Advance Estimates.  PCE was revised up from 1.8% to 2.2%, and private investment was revised up.   A solid report.