by Calculated Risk on 8/23/2015 07:29:00 PM

I'm back from vacation and starting to catch up!

The key reports this week are July New Home sales on Tuesday, the second estimate of Q2 GDP on Thursday, and Case-Shiller house prices on Tuesday.

----- Monday, August 24th -----
8:30 AM ET: Chicago Fed National Activity Index for July. This is a composite index of other data.

----- Tuesday, August 25th -----
9:00 AM: S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May and June prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the May 2015 report (the Composite 20 was started in January 2000).

The consensus is for a 5.2% year-over-year increase in the Comp 20 index for June. The Zillow forecast is for the National Index to increase 4.3% year-over-year in June.

9:00 AM: FHFA House Price Index for June 2015. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.4% month-to-month increase for this index.

10:00 AM: New Home Sales for July from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the June sales rate.

The consensus is for an increase in sales to 516 thousand Seasonally Adjusted Annual Rate (SAAR) in July from 482 thousand in June.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for August.

----- Wednesday, August 26th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for July from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

----- Thursday, August 27th -----
All day: the Kansas City Fed Hosts Symposium in Jackson Hole, Wyoming (Thursday, Friday, and Saturday).

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, down from 277 thousand the previous week.

8:30 AM: Gross Domestic Product, 2nd quarter 2015 (second estimate). The consensus is that real GDP increased 3.2% annualized in Q2, revised up from 2.3%  in the advance estimate.

10:00 AM: Pending Home Sales Index for July. The consensus is for a 1.0% increase in the index.

11:00 AM: the Kansas City Fed manufacturing survey for August.

----- Friday, August 28th -----
8:30 AM ET: Personal Income and Outlays for July. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM: University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 93.3, up from the preliminary reading of 92.9.

by Calculated Risk on 8/22/2015 09:41:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

No one is perfect, although in January 2007 I did forecast a recession starting in 2007. And I was able to call the bottom in 2009.

Here are some recent posts on recessions:

From January 2015: Predicting the Next Recession

Recently there has been some discussion of a recession in 2015. That seems very unlikely to me - I'm not even on "recession watch".

From March 2013: Business Cycles and Markets

I've been asked several times about the recent ECRI recession call (obviously I disagreed with their incorrect recession call in 2011 - I wasn't even on recession watch then and I'm not on recession watch now - and I also think ECRI is wrong about a recession starting in mid-2012). ...

It seems to me ECRI is trying to make this an academic exercise and hoping for some significant downward revisions. Right now the data doesn't indicate a recession in 2012, but, as Menzie Chinn notes, "all of these series will be revised, so one wouldn’t want to state definitively we are not in a recession – therein lies the path to embarrassment. But the case still has to be made for recession."

But why do we care? ...

Why is there so much focus on the business cycle? For companies, especially cyclical companies, the reason is obvious – it helps with planning, staffing and investment.

But why are investors so focused on the business cycle? Obviously earnings decline in a recession, and stock prices fall too. The following graph shows the year-over-year (YoY) change in the S&P 500 (using average monthly prices) since 1970. Notice that the market usually declines YoY in a recession.
...
So calling a recession isn’t just an academic exercise, there is some opportunity to preserve capital.

Note: From June 2015: ECRI Admits Incorrect Recession Call

CR Note: I will be returning tomorrow (unless I change my mind), and I should start posting Sunday evening or Monday morning. Best to all!

by Calculated Risk on 8/21/2015 09:21:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In 2005 and 2006, I was researching previous housing bubble / busts to try to predict what would happen following the bursting of the housing bubble.

So, in April 2008, when many pundits were calling the housing bottom, I wrote: Housing Bust Duration

After another year (or two) of rapidly falling prices, it's very likely that real prices will continue to fall - but at a slower pace. During the last few years of the bust, real prices will be flat or decline slowly - and the conventional wisdom will be that homes are a poor investment.

The Los Angeles bust took 86 months in real terms from peak to trough (about 7 years) using the Case-Shiller index. If the Composite 20 bust takes a similar amount of time, the real price bottom will happen in early 2013 or so.

And then in February 2012 I wrote: The Housing Bottom is Here

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).

And in March 2013, I wrote about the two bottoms - one for activity and the other for prices: Housing: The Two Bottoms

I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.
...
[I]t appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.

by Calculated Risk on 8/20/2015 09:27:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In early 2009, many analysts were predicting the 2nd Great Depression. However I started seeing some positive signs ... and I was able to call the end of the recession in mid-2009.

From January 2009: Vehicle Sales

David Rosenberg at Merrill Lynch wrote a research piece last week: "Not Your Father’s Recession ...(But Maybe Your Grandfather’s)" (no link)

Needless to say, the piece wasn't too upbeat.

But I was intrigued by some of the comments on vehicle sales.
...
Currently this ratio is at 23.9 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 24 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.
...
Sales won't increase right away (look at the depressed sales during the early '80s), but this does suggest that auto sales are closer to the bottom than the top, and that auto sales will increase significantly in the future - although sales in 2009 will probably be dismal.

And from February 2009: Looking for the Sun

2009 will be a grim economic year. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but there might be a few rays of sunshine too.
...
Even though most of the economic news will be ugly in 2009, my guess is all three of these series will find a bottom (or at least the pace of decline will slow significantly). This means that the drag on employment in these industries, and the drag on GDP, will slow or stop.

These will be rays of sunshine in a very dark season. That doesn't mean a thaw, but it will be a beginning ...

CR Note: I do not have a crystal ball, but I was looking past the horrible day-to-day numbers and starting to see the end of the recession.

by Calculated Risk on 8/19/2015 09:01:00 PM

NOTE: CR is on vacation this week and will return on Sunday, August 23rd.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.

• At 10:00 AM, the Philly Fed manufacturing survey for August. The consensus is for a reading of 7.0, up from 5.7.

• Also at 10:00 AM, Existing Home Sales for July from the National Association of Realtors (NAR). Sales in June were at a 5.49 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.64 million SAAR. The consensus is for 5.41 million SAAR, down from 5.49 million in June.

Take the over on existing home sales!

by Calculated Risk on 8/19/2015 09:58:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In December 2007, most analysts were still dramitically underestimating the probably losses for lenders and financial institutions.

Here is an article from the WSJ quoting a crazy blogger: How High Will Subprime Losses Go?

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Many people thought I was crazy. But losses for lenders and financial institutions ended up over $1 Trillion.

And if you look at the post the WSJ referenced, the first paragraph starts: "Within the next couple of years, probably somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes are worth."

I was a grizzly bear!

by Calculated Risk on 8/18/2015 09:05:00 PM

NOTE: CR is on vacation this week and will return on Sunday, August 23rd.

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 Consumer Price Index for July from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

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

• 2:00 PM: FOMC Minutes, Meeting of July 28-29, 2015

by Calculated Risk on 8/18/2015 09:52:00 AM

Every finance and economics blogger owes Tanta a debt of gratitude. Before Tanta wrote the following essay, newspapers would "borrow" ideas and subjects from bloggers, and never mention the source. In March 2007 - with a powerful essay - she changed the way the main street media treated bloggers.

 In the week following publication of this piece, Tanta or myself were mentioned in just about every major newspaper in the US!

Sadly the media has trouble distinguishing between informed commentary and nonsense (like Zero Right) ... but at least bloggers now get mentioned.

From March 2007: Media Inquiries Policy

Calculated Risk is a hobby blog, created and maintained by a retired executive, with occasional assistance from a former bank officer and mortgage lending specialist who is currently on extended medical leave. Both of these people get endless questions, answers, hat tips, links, analysis, and overall inspiration from a very diverse group of commenters, regulars and occasional de-lurkers, all of whom are beloved except some of them.

CR regularly gets emails and comments from paid reporters who wish to know if CR or Tanta would like to be interviewed, or would simply like to answer one or several questions that the reporter has about economic or housing or mortgage issues. Because, so far, the answer has always been something on the order of “no,” we would like to explain to you why this is the case.
...
Dear reporters, we quote your stuff periodically, giving credit both to the reporter and the publication, under fair use terms. We have no objection to your returning the favor. If you have an editor who will not allow that, and you think that the problem can be solved by getting one of us to drop our online personas, give you our real names, and say the same thing to you over the phone, so that you can get your editor to accept it as something other than just blogging, which everybody knows is untrustworthy ranting by anonymous nuts, you are making a faulty assumption about the relationship among us, our birthdays, and yesterday. Neither CR nor Tanta wishes to play into a set of assumptions that render what we say on the blog as unworthy of coverage by the Big Media, but what we might say on the phone to Intrepid Reporter as good dirt and straight skinny.

by Calculated Risk on 8/17/2015 09:02:00 PM

NOTE: CR is on vacation this week and will return on Sunday, August 23rd.

Tuesday:
• At 8:30 AM: Housing Starts for July. Total housing starts increased to 1.174 million (SAAR) in June. Single family starts decreased to 685 thousand SAAR in June. The consensus for 1.185, up from 1.174 million in June.

by Calculated Risk on 8/17/2015 09:42:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In December 2006, my friend Doris "Tanta" Dungey started writing for Calculated Risk.

From December 2006, until she passed away from ovarian cancer on Nov 30, 2008, Tanta was my co-blogger. Tanta worked as a mortgage banker for 20 years, and we started chatting in early 2005 about the housing bubble and the changes in lending practices. In 2006, Tanta was diagnosed with late stage cancer, and she took an extended medical leave while undergoing treatment. While on medical leave she wrote for this blog, and her writings received widespread attention and acclaim.

If you want to understand the mortgage industry, read Tanta's posts (here is The Compleat UberNerd and a Compendium of Tanta's Posts).

As an example, here is a brief excerpt from Foreclosure Sales and REO For UberNerds

The following is not an exhaustive discussion of all of the issues involved in foreclosures and REO. It’s a start at unpacking some of the concepts and definitions. We have been seeing, and are going to continue to see, a lot of information presented on foreclosure sales, REO sales, and their impacts on existing home transaction volumes and prices in various market areas. As always with “UberNerd” posts, this is long and excruciating. Proceed with typical motivation as you may consider your own best interest in an open market in blog postings.

And an excerpts from Mortgage Servicing for UberNerds

StillLearning asked in the comments about mortgage servicing, and since y’all are nerds, not dummies, here’s my highly-selective occasionally-oversimplified summary for you that skips the boring parts like how your check gets out of the “lockbox” and that stuff. We can discuss extra-credit issues like “excess servicing” and “subservicing” and “SFAS 144 meets MSR” and “negative convexity” and other kinds of inside baseball in the comments. There is a lot that can be said about loan servicing, but let’s start with the basics:

Servicers have two major types of servicing portfolio: loans they service for themselves and loans they service for other investors. In accounting terms, the “compensation” is the same, meaning that even if you are the noteholder, you pay yourself to service the loans in the same way that an outside investor would pay you, and it shows on the books that way. The differences in compensation stem from the basic fact that one is generally more motivated to do a good job servicing (particularly collecting and efficiently liquidating REO) for one’s own investment than for someone else’s.

Also see In Memoriam: Doris "Tanta" Dungey for photos, links to obituaries in the NY Times, Washington Post and much more.