by Calculated Risk on 12/25/2014 06:39:00 PM

Freddie Mac reported yesterday that the Single-Family serious delinquency rate was unchanged in November at 1.91%. Freddie's rate is down from 2.43% in November 2013, and the rate in October and November was the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

The serious delinquency had declined every month since December 2012 (when it was also unchanged).

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 November next week.

Click on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.52 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 12/25/2014 08:41:00 AM

Happy Holidays and Merry Christmas to All!

Out through the fields and the woods
And over the walls I have wended;
I have climbed the hills of view
And looked at the world, and descended;
I have come by the highway home,
And lo, it is ended.

The leaves are all dead on the ground,
Save those that the oak is keeping
To ravel them one by one
And let them go scraping and creeping
Out over the crusted snow,
When others are sleeping.

And the dead leaves lie huddled and still,
No longer blown hither and thither;
The last lone aster is gone;
The flowers of the witch-hazel wither;
The heart is still aching to seek,
But the feet question ‘Whither?’

Ah, when to the heart of man
Was it ever less than a treason
To go with the drift of things,
To yield with a grace to reason,
And bow and accept the end
Of a love or a season?

Reluctance by Robert Frost From A Boy's Will, 1913.

Love greatly. Enjoy the season!

by Calculated Risk on 12/24/2014 07:37:00 PM

30 year mortgage rates moved up a little today, but are way down from 4.60% a year ago.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Match December Highs

Mortgage rates continued higher today as lenders opted for typically conservative holiday pricing strategies. The bond markets that most directly influence mortgage rates improved slightly from yesterday's precipitous weakness. Normally, those underlying market movements do more to move rates than anything else, but in cases where lenders are getting caught up to abrupt market changes or when they're protecting against uncertainty associated with long holiday weekends, their individual strategies can result in higher rates in spite of market movements suggesting lower rates. That's the case today, and it puts the average conforming 30yr fixed rate quote at 4.0%, matching the previous high from December 5th.

There's no way to know if rates will move higher or lower next week (don't expect much change this Friday). What we do know is that rates would improve if trading levels merely held flat between now and then. In other words, there's a bit of extra negativity baked into current rate sheets, and if markets manage to hold their ground or improve heading into the new year, we would get some of the recent losses back. To be clear, that's something that makes sense to HOPE for, but isn't justification to forgo locking your rate unless you're prepared to lock at even higher rates if the market happens to move against you.

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 12/24/2014 03:01:00 PM

Here is a review of the Ten Economic Questions for 2014.

There are always many questions for the new year. There are international economic issues with Russia in recession, Europe struggling and China slowing. There are always problems in the middle east, North Korea, and in other regions.

In the U.S., this is an odd year (no election), and Congress might threaten the economy again.  And something might surprise us again (did anyone see yields dropping this far in 2014?).

Here are my ten questions for 2015. I'll follow up with some thoughts on each of these questions.

1) Economic growth: Heading into 2015, most analysts are pretty sanguine.   Even with contraction in Q1, 2014 was a decent year (GDP will grow around 2.4% in 2014).  Will 2015 be the best year of the recovery so far?  Could 2015 be the best year since the '90s?  Or will 2015 disappoint again?

2) Employment:  With one month to go, 2014 is already the best year for employment growth since the '90s.   Will 2015 be as strong?  Or will job creation slow in 2015?

3) Unemployment Rate: The unemployment rate was at 5.8% in November, down 0.9 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 5.2% to 5.3% range next December.  What will the unemployment rate be in December 2015?

4) Inflation: The inflation rate is still running well below the Fed's 2% target. Will the core inflation rate rise in 2015?  Will too much inflation be a concern in 2015?

5) Monetary Policy:  The Fed completed QE3 in 2014, and now the question is will the Fed raise rates in 2015?  If so, when?  And by how much?  The Fed Funds rate has been at 0 to 0.25% since December 2008.

6) Real Wage Growth: Last month I listed a few economic "words of the year" for the last decade.  I finished with: "2015: Wages (Just being hopeful - maybe 2015 will be the year that real wages start to increase)". Will real wages increase in 2015?

7) Oil Prices: Declining oil prices and falling bond yields were two of the biggest stories of 2014.  Will oil prices continue to decline in 2015?

8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 - up 13.5% and 11.9% respectively - but RI was only up 1.6% through Q3 2014.   Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2015?  How about housing starts and new home sales in 2015?

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 5% or so in 2014 (after increasing about 12% nationally in 2013).   What will happen with house prices in 2015?

10) Housing Inventory: It appears housing inventory bottomed in early 2013.  Will inventory increase further in 2015, and, if so, by how much?

There are other key questions, but these are the ones I'm thinking about now.

by Calculated Risk on 12/24/2014 10:52:00 AM

The automakers will report December vehicle sales on Monday, Jan 5th. Sales in November were at 17.1 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in December might be close to 17 million SAAR again.

Note:  There were 26 selling days in December this year compared to 25 last year.

Here are a few forecasts:

From WardsAuto: Forecast: December Sales Set to Reach 10-Year High

A WardsAuto forecast calls for U.S. automakers to sell 1.51 million light vehicles in December, which would be the second-highest December sales tally since at least 1980, just behind December 2004’s 1.53 million. ... The forecast puts the seasonally adjusted annual rate of sales at 16.95 million-units, within a hair of breaking the 17 million mark for two consecutive months for the first time since June and July 2005.

From J.D. Power: Vehicle Sales Forecast Increases for 2014 and 2015; December Retail SAAR Highest Since 2006

Total light-vehicle sales in December 2014 are expected to reach 1.5 million units, a 6 percent increase, compared with December 2013. [Total forecast 16.7 million SAAR]
...
For 2015, LMC Automotive has raised its forecast to 17.4 million units from 17.2 million, which is a 3 percent growth from 2014.

From Kelley Blue Book: New-Vehicle Sales To Jump Nearly 10 Percent In Best December Since 2004; Kelley Blue Book Forecasts 16.9 Million SAAR In 2015

In December, new light-vehicle sales, including fleet, are expected to hit 1,490,000 units, up 9.8 percent from December 2013 and up 14.7 percent from November 2014. The seasonally adjusted annual rate (SAAR) for December 2014 is estimated to be 16.7 million, up from 15.4 million in December 2013 and down from 17.1 million in November 2014.

And on 2015 from TrueCar: TrueCar projects 2015 U.S. new auto sales to reach decade-high 17 million, set all-time record revenue of $553 billion

TrueCar, Inc. ... expects a healthy U.S. auto industry in 2015 with sales of new cars and trucks rising at least 2.6 percent to 17 million units, the highest level since 2005.

Another strong month for auto sales.

by Calculated Risk on 12/24/2014 08:50:00 AM

From the DOL reported:

In the week ending December 20, the advance figure for seasonally adjusted initial claims was 280,000, a decrease of 9,000 from the previous week's unrevised level of 289,000. The 4-week moving average was 290,250, a decrease of 8,500 from the previous week's unrevised average of 298,750.

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

The previous week was unrevised.

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 decreased to 290,250.

This was lower than the consensus forecast of 290,000, and the level suggests few layoffs.

by Calculated Risk on 12/24/2014 07:01:00 AM

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

Mortgage applications increased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 19, 2014. ...

The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 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 4.02 percent, the lowest level since May 2013, from 4.06 percent, with points increasing to 0.26 from 0.21 (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 72% from the levels in May 2013.

Even with the general decline in mortgage rates, refinance activity is very low this year and 2014 will be the lowest since year 2000.  Rates would have to decline significantly for there to be a large refinance boom.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down 1% from a year ago.

by Calculated Risk on 12/23/2014 08:41:00 PM

From the WSJ: U.S. Economy Posts Strongest Growth in More Than a Decade

U.S. gross domestic product, the fullest measure of economic output, was shown in the Commerce Department’s third estimate to have expanded at a 5% pace in the third quarter—up from the second quarter’s growth rate of 4.6% and the strongest pace since the third quarter of 2003.

The growth was buoyed by consumer spending on health care and restaurant meals, business investment in equipment and new software, and a rise in exports.

And Q4 will be decent, although it appears some investment will slow - especially for petroleum and natural gas - but the consumer will be solid. A nice end to a good economic year!

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, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 290 thousand from 289 thousand.

• The NYSE and the NASDAQ will close at 1:00 PM ET.

by Calculated Risk on 12/23/2014 04:02:00 PM

At the end of each year, I post ten questions for the upcoming year. Here are the Ten Economic Questions for 2014. I follow up with a brief post on each question, and the goal is to provide an overview of what I expect for the coming year (I don't have a crystal ball, but I think it helps to outline what I think will happen - and then try to understand why I was wrong).

I've been lucky in the years with turning points (calling the recession in 2007 or the bottom for house price in early 2012 are two examples).

Here is a 2014 review. I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments:

10) Question #10 for 2014: Downside Risks

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk ... There are always potential geopolitical risks (war with Iran, North Korea, or turmoil in some oil producing country).  Right now those risks appear small, although it is always hard to tell. ...

When I look around, I see few obvious downside risks for the U.S. economy in 2014. No need to borrow trouble - diminished downside risks are a reason for cheer. 

There are international risks - China remains a downside risk.  Russia too.  Europe (and the Euro) are still a mess, and the situations in the Ukraine and Iraq are serious, but overall it appears that downside risks to the U.S. economy were less in 2014 than in 2013.

9) Question #9 for 2014: How much will housing inventory increase in 2014?

Right now my guess is active inventory will increase 10% to 15% in 2014 (inventory will decline seasonally in December and January, but I expect to see inventory up 10% to 15% year-over-year toward the end of 2014).  This will put active inventory close to 6 months supply this summer.   If correct, this will slow house price increases in 2014.

The NAR reported inventory was up 2.0% year-over-year in November.  However Zillow is showing inventory up 12% year-over-year.  Note: I used to follow "Housing Tracker" weekly, but the site had some data problems and they discontinued the series. The "10% to 15%" increase this year was too high based on the NAR reports.

8) Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

Bottom line: I expect lending standards to loosen a bit in 2014 from the tight level of the last few years.   It will be difficult to measure, but I'll be watching what Mel Watt says, what private lenders say, comments from mortgage brokers, and MEW.

I think we are seeing a little loosening with Fannie and Freddie clarifying Reps and Warrants, and in some circumstances, lower downpayment requirements.  Mortgage equity withdrawal is still net negative (but a smaller negative).

7) Question #7 for 2014: What will happen with house prices in 2014?

In 2014, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. This suggests more house price increases in 2014, but probably at a slow pace.

As Khater noted, some of the "bounce back" in certain areas is probably over, also suggesting slower price increases going forward.  And investor buying appears to have slowed.  A positive for the market will probably be a little looser mortgage credit.

All of these factors suggest further prices increases in 2014, but at a slower rate than in 2013.   There tends to be some momentum for house prices, and I expect we will see prices up mid-to-high single digits (percentage) in 2014 as measured by Case-Shiller.

We only have Case-Shiller data through September, and price increases have slowed as expected. Zillow expects the October Case-Shiller National index to show a 4.8% year-over-year gain.  My prediction was based on the Composite 20 which would be a little higher (Case-Shiller started releasing the national index monthly this year).  My prediction was pretty close, and if anything, house prices slowed more than I expected.

6) Question #6 for 2014: How much will Residential Investment increase?

New home sales will still be competing with distressed sales (short sales and foreclosures) in some judicial foreclosure states in 2014. However, unlike last year when I reported that some builders were land constrained (not enough finished lots in the pipeline), land should be less of an issue this year. Even with the foreclosures, I expect another solid year of growth for new home sales.

... I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013. That would still make 2014 the tenth weakest year on record for housing starts (behind 2008 through 2012 and few other recession lows).

Through November, new home sales were flat compared to 2013, and housing starts were only up 7.8%  year-over-year.  Clearly I was too optimistic this year. There were a number of factors that kept RI down, but I still think fundamentals support a higher level of starts.  An optimistic view is that the sluggish growth this year means more growth over the next several years!

5) Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?

[E]ven though the Fed is data-dependent, I currently expect the Fed to reduce their asset purchases by $10 billion per month (or so) at each meeting this year and conclude QE3 at the end of the 2014.

QE3 ended in October.

4) Question #4 for 2014: Will too much inflation be a concern in 2014?

[C]urrently I think inflation (year-over-year) will increase a little in 2014 as growth picks up, but too much inflation will not be a concern in 2014.

Core measures of inflation did increase a little this year, and too much inflation was not a concern in 2014.

3) Question #3 for 2014: What will the unemployment rate be in December 2014?

My guess is the participation rate will stabilize or only decline slightly in 2014 (less than in 2012 and 2013) ... it appears the unemployment rate will decline to the low-to-mid 6% range by December 2014.

The participation rate did stabilize - in December 2013, the participation rate was 62.8%, and in November 2014, the participation rate was ... 62.8%.  However the unemployment rate was 5.8% in November and I was too pessimistic on unemployment.

2) Question #2 for 2014: How many payroll jobs will be added in 2014?

Both state and local government and construction hiring should improve further in 2014.  Federal layoffs will be a negative, but most sectors should be solid.  So my forecast is somewhat above the previous three years, and I expect gains of about 200,000 to 225,000 payroll jobs per month in 2014.
...
It is possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

Through November 2014, the economy has added 2,650,000 jobs, or 240,000 per month - above my projection - and the best year since 1999!

1) Question #1 for 2014: How much will the economy grow in 2014?

I expect PCE to pick up again into the 3% to 4% range, and this will give a boost to GDP.   This increase in consumer spending should provide an incentive for business investment.  Add in the ongoing housing recovery, some increase in state and local government spending, and 2014 should be the best year of the recovery with GDP growth at or above 3%

PCE was sluggish at 1.2% in Q1 (due to the bad weather), picked up in Q2 to 2.5%, and in Q3 to 3.2%.  Right now, based on the November Personal Income data, it looks like PCE will be around 4.3% in Q4.  Not quite what I expected, because of Q1 weakness, but a clear acceleration.   GDP will be probably be around 2.4% (or higher) - pretty amazing because of the contraction in Q1.  Growth clearly picked up this year, and 2014 will be close to the best year of the recovery.

Overall 2014 unfolded about as expected - I anticipated the pickup in employment and economic growth, was correct on inflation and Fed policy - however I was too optimistic on housing.

by Calculated Risk on 12/23/2014 12:53:00 PM

Earlier: New Home Sales at 438,000 Annual Rate in November

The new home sales report for November was below expectations at 438 thousand on a seasonally adjusted annual rate basis (SAAR). Also, sales for the two of the previous months were revised down.

Sales in 2014 are significantly below expectations, however, based on the low level of sales, more lots coming available, and demographics, I expect sales to increase over the next several years.

It is important to remember that demographics is a slow moving - but unstoppable - force!

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.  One major reason for that optimism was demographics - a large cohort was moving into the renting age group.

Now demographics are slowly becoming more favorable for home buying.

Click on graph for larger image.

This graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts - and new home sales - to continue to increase in coming years.

This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate).

The Census Bureau reported that new home sales this year, through November, were 399,000, that is up 0.2% from the same period of 2013.  Right now it looks like sales will be mostly unchanged this year compared to last year.

And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to mostly move sideways (distressed sales will continue to decline and be offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.