by Calculated Risk on 12/21/2015 07:53:00 PM

From Joe Weisenthal at Bloomberg Odd Lots: How One Woman Tried To Warn Everyone About The Housing Crash

Or as Bloomberg's Tracy Alloway tweeted: "Big Short be damned. Listen to the conversation @TheStalwart and I had with @calculatedrisk about who saw it coming"

Tanta Vive!!!

Tuesday:
• At 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%.

• At 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.

• At 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.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for December.

by Calculated Risk on 12/21/2015 03:45:00 PM

CR Note: One of the criticisms of "The Big Short" is there are no women lead characters. That is a huge oversight, especially since Tanta was a key source for understanding the mortgage industry for many hedge fund managers!

From Joe Weisenthal at Bloomberg Odd Lots: How One Woman Tried To Warn Everyone About The Housing Crash

In the middle of the last decade, a blog called Calculated Risk became a must-read for its obsessive coverage of the economy and its warnings about the overheating housing market. During the 2006-08 period, Calculated Risk had two authors: One was the blog's founder, Bill McBride, and the other was "Tanta," a pseudonymous mortgage industry professional who was trying to blow the whistle on the problems she saw emanating from her industry.

Tanta's posts, which were extraordinarily detailed, good humored, and prescient, became must-reads for a host of bloggers, traditional journalists, and Wall Street professionals trying to get a handle on the crisis. Sadly, the world found out her name only in December 2008, when she died of cancer. But her influence remained enormous. And the world was fortunate that in the final two years of her life, she produced such an extraordinary wealth of information detailing exactly how the mortgage industry worked and produced the mess that was the housing bubble.

In the latest edition of Odd Lots, we spoke with Bill McBride, who still writes Calculated Risk, about her work.

by Calculated Risk on 12/21/2015 02:10:00 PM

I mentioned this over the weekend.

The NAR will report November Existing Home Sales on Tuesday, December 22nd at 10:00 AM.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.32 million. Housing economist Tom Lawler estimates the NAR will report sales of 4.97 million on a seasonally adjusted annual rate (SAAR) basis, down from 5.36 million SAAR in October.

Based on Lawler's estimate, I expect a miss tomorrow.

Note:  Lawler is not always right on, but he is usually pretty close.  See this post for a review of Lawler's track record.

by Calculated Risk on 12/21/2015 10:59:00 AM

From the NY Times: Oil Prices Slump to 11-Year Lows in Asia and Europe

Oil prices hit 11-year lows in Asia and Europe on Monday, as a glut of crude on world markets and the recent global climate accord continue to depress fossil-fuel prices.

Brent crude oil, the international benchmark, was trading at $36.50 per barrel in late European trading.
...
In a recent report, the International Energy Agency said it expected global inventories to keep growing at least until late 2016, although at a much slower pace than this year. “As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market,” the agency said.

Click on graph for larger image

This graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).  According to Bloomberg, WTI is at $34.46 per barrel today, and Brent is at $36.62

Prices really collapsed a year ago - and then rebounded a little - and have collapsed again.  There are many factors pushing down oil prices - more global supply (even as shale producers cut back), global economic weakness (slowing demand), and warm weather in the US (less heating demand) to mention a few.

by Calculated Risk on 12/21/2015 08:42:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows Economic Growth Slowed in November

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to –0.30 in November from –0.17 in October. Two of the four broad categories of indicators that make up the index decreased from October, and three of the four categories made negative contributions to the index in November.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.20 in November from –0.18 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was somewhat below the historical trend in November (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 12/20/2015 07:19:00 PM

From Reuters: U.S. gas prices fall to lowest in more than six years: survey

U.S. gasoline prices dropped by 4 cents to $2.06 a gallon on average in the past two weeks to the lowest in more than six years, according to a Lundberg survey released on Sunday.

The price, for regular grade as of Friday, was the lowest since $2.05 in April 2009 ...

According to Gasbuddy.com, average national regular gasoline prices today are now under $2.00 per gallon.  And prices should fall further over the next few weeks (based on the recent decline in oil prices).

Weekend:
• Schedule for Week of December 20th

• Lawler: "Yes, Houston will have a problem next year"

• Existing Home Sales: Expect a Miss

• Goldman Sachs on Fed Funds rate: "Fairly easy path to a second hike in March"

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are up 2 and DOW futures are up 20 (fair value).

Oil prices were down over the last week with WTI futures at $34.66 per barrel and Brent at $36.88 per barrel.  A year ago, WTI was at $57, and Brent was at $59 - so prices are down almost 40% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at close to $1.99 per gallon (down about $0.40 per gallon from a year ago). Gasoline prices are now at the lowest level since the financial crisis.

by Calculated Risk on 12/20/2015 01:17:00 PM

Some thoughts on the Houston housing market from housing economist Tom Lawler:

Earlier this week I sent out a message with a link to the Houston Association of Realtors report showing that MLS-based home sales in the Houston metro market showed a double digit YOY decline for the second straight month in November, and that total property listings were up by over 20% from a year earlier.

Here are some other “macro” numbers (in table or graph form) for the Houston metro area.

Non-farm payroll employment, YOY growth, November 2014 – November 2015, Not Seasonally Adjusted (released this morning for Texas/Houston)

Year-over-year Employment Growth
	US	Houston	Rest of Texas
Total	1.9%	0.8%	1.8%
Mining and Logging	-13.5%	-4.9%	-12.4%
Construction	4.2%	1.9%	1.4%
Manufacturing	0.3%	-6.0%	-3.2%
Education and Health	2.9%	4.2%	4.1%
Leisure and Hospitality	3.0%	6.7%	3.8%
Other Private Services	2.1%	-0.3%	2.4%
Government	0.4%	2.7%	1.1%
Total Less L&H	1.7%	0.2%	1.5%
Total Less L&H and Govt	2.0%	-0.3%	1.7%

Houston was one of the fastest growing large MSAs in terms of both population growth and employment growth from 2011 to 2014. Over the 12-month period ending in November, however, employment growth was quite anemic in Houston, and excluding the Leisure & Hospitality Sector (which has lower than average hourly wages and lower than average hours worked per week) employment was virtually unchanged from a year ago.

Unemployment rate (Not Seasonally Adjusted)

Unemployment rate (Not Seasonally Adjusted)
	November-15	November-14
US	4.81%	5.53%
Houston	4.89%	4.33%
Rest of Texas	4.53%	4.46%

Despite a sharp slowdown in employment growth, the CPS-based unemployment rate for Houston actually declined somewhat in the first half of this year, which seemed “odd.” Since then, however, the unemployment rate has risen sharply, and Houston’s unemployment rate is now higher than the national average for the first time since 2006.

Single-Family Building Permits



*2015, SAAR through October

Reflecting the relatively strong population and employment growth, Housing SF building permits recovered by a substantially greater amount than the nation as a whole in the current recovery, and in 2013 and 2014 builders often described the market as “red-hot.” Permits in Houston have slowed a bit this year compared to last year, but have not slowed as much as one might have hoped given the sharp deceleration in employment growth, as well as dim prospects for employment growth next year.

Home Prices



Reflecting strong demand relative to the rest of the nation, Houston home price growth has considerably outpaced the national average over the past few years.

CR Note: This graph shows the Year-over-year (YoY) change in the Freddie Mac House Price Index (HPI) for both Houston and the U.S..


Oil Prices



Oil prices continued to fall in December.


Outlook

Houston’s economy has not yet fully adjusted to the decline in oil prices, and especially the slide in the past few months. There is a pretty good chance that Houston will see negative employment growth next year, along with a rise in its unemployment rate to above 6%. This environment, combined with the lack of any meaningful reduction in housing production to date, suggests that (1) housing production in the Houston MSA should decline significantly next year; and (2) overall home prices should fall as well.

by Calculated Risk on 12/20/2015 08:11:00 AM

The NAR will report November Existing Home Sales on Tuesday, December 22nd at 10:00 AM.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.32 million. Housing economist Tom Lawler estimates the NAR will report sales of 4.97 million on a seasonally adjusted annual rate (SAAR) basis, down from 5.36 million SAAR in October.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for over 5 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

Over the last five years, the consensus average miss was 145 thousand, and  Lawler's average miss was 68 thousand.

Many analysts now change their "forecast" after Lawler's estimate is posted, so the consensus has improved a little recently!

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	5.15	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	4.93
Dec-14	5.05	5.15	5.04
Jan-15	5.00	4.90	4.82
Feb-15	4.94	4.87	4.88
Mar-15	5.04	5.18	5.19
Apr-15	5.22	5.20	5.04
May-15	5.25	5.29	5.35
Jun-15	5.40	5.45	5.49
Jul-15	5.41	5.64	5.59
Aug-15	5.50	5.54	5.31
Sep-15	5.35	5.56	5.55
Oct-15	5.41	5.33	5.36
Nov-15	5.32	4.97	---
1NAR initially reported before revisions.

by Calculated Risk on 12/19/2015 08:21:00 AM

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!

----- Monday, December 21st -----
8:30 AM ET: Chicago Fed National Activity Index for November. This is a composite index of other data.

----- Tuesday, December 22nd -----
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.

----- Wednesday, December 23d -----
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.

----- Thursday, December 24th -----
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.

----- Friday, December 25th -----
All US markets will be closed in observance of the Christmas Holiday.

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. ...

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%. 

Most analysts expect no change at the January FOMC meeting, but another rate hike in March seems likely.

Note that the effective funds rate was 0.37% yesterday (in the new range).