RSS Feed by Calculated Risk on 12/19/2015 08:21:00 AM
Saturday, December 19, 2015
Schedule for Week of December 20th
The key reports this week are the third estimate of Q3 GDP, November New Home sales, November Existing Home Sales, and November personal income and outlays.
Merry Christmas and Happy Holidays to All!
8:30 AM ET: Chicago Fed National Activity Index for November. This is a composite index of other data.
8:30 AM ET: Gross Domestic Product, 3rd quarter 2015 (Third estimate). The consensus is that real GDP increased 2.0% annualized in Q3, revised down from the second estimate of 2.1%.
9:00 AM: FHFA House Price Index for October 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: Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 5.32 million SAAR, down from 5.36 million in October. Economist Tom Lawler estimates the NAR will report sales of 4.97 million SAAR.
A key will be the reported year-over-year change in inventory of homes for sale.
10:00 AM: Richmond Fed Survey of Manufacturing Activity for December.
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
8:30 AM: Durable Goods Orders for November from the Census Bureau. The consensus is for a 0.5% decrease in durable goods orders.
8:30 AM ET: Personal Income and Outlays for November. The consensus is for a 0.2% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.
10:00 AM: New Home Sales for November from the Census Bureau. This graph shows New Home Sales since 1963. The dashed line is the August sales rate.
The consensus is for a increase in sales to 503 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 495 thousand in October.
10:00 AM: University of Michigan's Consumer sentiment index (final for December). The consensus is for a reading of 91.9, up from the preliminary reading 91.8.
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, down from 171 thousand the previous week.
The NYSE and the NASDAQ will close at 1:00 PM ET.
All US markets will be closed in observance of the Christmas Holiday.
Friday, December 18, 2015
Goldman Sachs on Fed Funds rate: "Fairly easy path to a second hike in March"
by Calculated Risk on 12/18/2015 07:26:00 PM
A few excerpts from a research piece by Goldman Sachs economists David Mericle and Daan Struyven A Road Map to Hikes in March and Beyond
The FOMC raised its target range for the federal funds rate to 0.25-0.50% this week, shifting attention to the pace of subsequent hikes. While the median dot indicates a further 100bp increase in the funds rate in 2016, implying a second hike in March, the market is skeptical. ...Most analysts expect no change at the January FOMC meeting, but another rate hike in March seems likely.
We see a fairly easy path to a second hike in March. We expect growth to remain above trend and employment gains to remain well above the "breakeven" rate. Most importantly, inflation is likely to rise by March as sharp declines in energy and health care prices drop out of the year-on-year calculation, supporting the Fed's expectation that inflation will pick up as transitory pressures fade.
... We find that ... the odds of a March hike are about 80% and the odds of four hikes by year-end are about 66%.
Note that the effective funds rate was 0.37% yesterday (in the new range).
Mortgage Equity Withdrawal Slightly Positive in Q3, First Time since Q1 2008
by Calculated Risk on 12/18/2015 03:10:00 PM
Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.
The following data is calculated from the Fed's Flow of Funds data (released last week) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).
For Q3 2015, the Net Equity Extraction was a positive $4 billion, or a positive 0.1% of Disposable Personal Income (DPI) - only slightly positive. MEW for Q2 was revised up slightly, so this is the 2nd consecutive quarter with slightly positive MEW - the first positive MEW since Q1 2008.
Click on graph for larger image.
This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.
Note: This data is still heavily impacted by debt cancellation and foreclosures.
The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $48 billion in Q3.
The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.
With residential investment increasing, and a slower rate of debt cancellation, MEW has now turned slightly positive.
For reference:
Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).
For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.
What I like to see: Agencies Issue Statement on CRE Loans
by Calculated Risk on 12/18/2015 12:25:00 PM
During the housing bubble, the regulatory agencies were lax in providing guidance related to weak lending standards and high credit concentrations. Now the agencies are being more proactive.
This doesn't suggest a problem in CRE lending, rather the agencies are trying to get ahead of future problems.
From the FDIC: Agencies Issue Statement on Prudent Risk Management for Commercial Real Estate Lending
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the agencies) are jointly issuing this statement to remind financial institutions of existing regulatory guidance on prudent risk management practices for commercial real estate (CRE) lending activity through economic cycles.The seeds for the next round of bank failures are always planted during an expansion. This statement - and strict enforcement - are important to limit future failures.
Recent Supervisory Findings
The agencies have observed that many CRE asset and lending markets are experiencing substantial growth, and that increased competitive pressures are contributing significantly to historically low capitalization rates and rising property values. At the same time, other indicators of CRE market conditions (such as vacancy and absorption rates) and portfolio asset quality indicators (such as non-performing loan and charge-off rates) do not currently indicate weaknesses in the quality of CRE portfolios. Influenced in part by the continuing strong demand for such credit and the reassuring trends in asset-quality metrics, many institutions’ CRE concentration levels have been rising.
The agencies’ examination and industry outreach activities have revealed an easing of CRE underwriting standards, including less-restrictive loan covenants, extended maturities, longer interest-only payment periods, and limited guarantor requirements. The agencies also have observed certain risk management practices at some institutions that cause concern, including a greater number of underwriting policy exceptions and insufficient monitoring of market conditions to assess the risks associated with these concentrations.
Historical evidence demonstrates that financial institutions with weak risk management and high CRE credit concentrations are exposed to a greater risk of loss and failure.
emphasis added
Kansas City Fed: Regional Manufacturing Activity "declined moderately" in December
by Calculated Risk on 12/18/2015 11:02:00 AM
From the Kansas City Fed: Tenth District Manufacturing Activity Declined Moderately
The Federal Reserve Bank of Kansas City released the December Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined moderately, although expectations for future activity remained solid.The Kansas City region has been hit hard by lower oil prices and the strong dollar. Contraction in December was probably due to the recent decline in oil prices.
“After two months of mostly steady activity, regional factories pulled back again in December,” said Wilkerson. “The weakest activity was in energy-concentrated states.”
...
Tenth District manufacturing activity declined moderately in December, reversing gains from the last several months, while producers’ expectations for future activity remained solid. Most price indexes continued to ease further.
The month-over-month composite index was -9 in December, down from 1 in November and -1 in October
...
The employment index dropped from -8 to -14, and the capital expenditures index posted its lowest level since August 2010. ...
Future factory indexes were mixed, but remained at generally solid levels. The future composite index was basically unchanged at 7, while the future production, shipments, and new orders for exports indexes increased modestly.
emphasis added
BLS: Unemployment Rate decreased in 27 States in November
by Calculated Risk on 12/18/2015 10:13:00 AM
From the BLS: Regional and State Employment and Unemployment Summary
Regional and state unemployment rates were little changed in November. Twenty-seven states had unemployment rate decreases from October, 11 states had increases, and 12 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.
...
North Dakota had the lowest jobless rate in November, 2.7 percent, followed by Nebraska, 2.9 percent. New Mexico had the highest rate, 6.8 percent.
Click on graph for larger image.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.
The size of the blue bar indicates the amount of improvement. The yellow squares are the lowest unemployment rate per state since 1976.
The states are ranked by the highest current unemployment rate. New Mexico, at 6.8%, had the highest state unemployment rate.
The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).Currently no state has an unemployment rate at or above 7% (light blue); Only nine states are at or above 6% (dark blue).
Thursday, December 17, 2015
FNC: Residential Property Values increased 5.9% year-over-year in October
by Calculated Risk on 12/17/2015 08:37:00 PM
In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.
FNC released their October 2015 index data. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values decreased 0.1% from September to October (Composite 100 index, not seasonally adjusted).
The 10 city MSA decreased 0.1% (NSA), the 20-MSA RPI increased 0.1%, and the 30-MSA RPI increased 0.1% in October. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).
Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.
From FNC: FNC Index: Home prices slipped 0.1% after a nine-month run
The latest FNC Residential Price Index™ (RPI) indicates that U.S. home prices pulled back in October, ending a nine-month run of increases buoyed by low mortgages rates and rising credits. Nationwide, home prices fell 0.1% between September and October, led by declines in some of the country’s largest housing markets. October’s year-over-year growth remains unchanged from the prior month at a solid 5.9%.The year-over-year (YoY) change was the same in October as in September.
“In a relatively stable market like today’s, it is normal that home prices retreat to flat or negative growth territory as home sales subside entering the fall and winter months,” said Yanling Mayer, FNC’s housing economist and Director of Research.
“On the upside, low interest rates and the leverage provided by loans under affordable housing programs help maintain affordability and partly offset the impact on affordability from months of rapidly rising prices. With a much anticipated policy rate increase to affirm the strength of the U.S. economy, we will likely be looking at a milder seasonal slowdown and possibly a sooner return of market rebound in 2016,” continued Mayer.
The index is still down 14.6% from the peak in 2006 (not inflation adjusted).
Click on graph for larger image.This graph shows the year-over-year change based on the FNC index (four composites) through October 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.
Most of the other indexes are also showing the year-over-year change in the mid single digit range. For example, Case-Shiller was up 4.9% in September, CoreLogic was up 6.8% in October.
Note: The October Case-Shiller index will be released on Tuesday, December 29th.
LA area Port Traffic increased YoY in November
by Calculated Risk on 12/17/2015 02:10:00 PM
First, from the Port of Long Beach: Port Sees Fifth Straight Month of Cargo Gains
Strong cargo volume continued at the Port of Long Beach in November with 6.6 percent growth in container trade over the same month last year. It was the fifth straight month of increases and enough cargo to rack up the second-busiest November in the Port’s 104-year history.Note: There were some large swings in LA area port traffic earlier this year due to labor issues that were settled in late February. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.
...
Upcoming post-holiday sales planned by retailers across the country drove the Port’s strong cargo numbers.
Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.
The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).
To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.
Click on graph for larger image.On a rolling 12 month basis, inbound traffic was up 0.5% compared to the rolling 12 months ending in October. Outbound traffic was down 0.4% compared to 12 months ending in October.
The recent downturn in exports might be due to the strong dollar and weakness in China.
The 2nd graph is the monthly data (with a strong seasonal pattern for imports).
Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were up 6% year-over-year in November; exports were down 5% year-over-year.
Comments on November Housing Starts
by Calculated Risk on 12/17/2015 11:26:00 AM
Total housing starts in November were above expectations, however some of the strength might be related to the relatively warm weather in some parts of the country.
As an example, starts in the Northeast were up 21.5% year-over-year. But most of the strength was in the South (up 35.5% year-over-year), so the positive report was not all weather.
Yesterday: Housing Starts increased to 1.173 Million Annual Rate in November
This first graph shows the month to month comparison between 2014 (blue) and 2015 (red).
Total starts are running 11.0% ahead of 2014 through November.
Single family starts are running 10.5% ahead of 2014 through November, and single family starts were up 14.6% year-over-year in November.
Starts for 5+ units are up 13.1% through November compared to last year.
Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).
These graphs use a 12 month rolling total for NSA starts and completions.
The blue line is for multifamily starts and the red line is for multifamily completions.
The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).
Multi-family completions are increasing sharply year-over-year.
I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked in June (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).
The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.
Note the exceptionally low level of single family starts and completions. The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.
The housing recovery continues, but I expect less growth from multi-family going forward.
Weekly Initial Unemployment Claims decrease to 271,000
by Calculated Risk on 12/17/2015 08:35:00 AM
The DOL reported:
In the week ending December 12, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 11,000 from the previous week's unrevised level of 282,000. The 4-week moving average was 270,500, a decrease of 250 from the previous week's unrevised average of 270,750.The previous week was unrevised at 282,000.
There were no special factors impacting this week's initial claims.
The following graph shows the 4-week moving average of weekly claims since 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 270,500.
This was close to the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.
