by Calculated Risk on 4/29/2016 04:07:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 1.44%, down from 1.52% in February. The serious delinquency rate is down from 1.78% in March 2015.

This is the lowest rate since June 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Note: Freddie Mac has not reported for March yet.

Click on graph for larger image

The Fannie Mae serious delinquency rate has only fallen 0.34 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017.

The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in late 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

by Calculated Risk on 4/29/2016 12:26:00 PM

Economist Tom Lawler sent me an updated table below of short sales, foreclosures and all cash sales for selected cities in March.

On distressed: Total "distressed" share is down in all of these markets.

Short sales and foreclosures are down in all of these areas.

The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Mar- 2016	Mar- 2015	Mar- 2016	Mar- 2015	Mar- 2016	Mar- 2015	Mar- 2016	Mar- 2015
Las Vegas	5.9%	8.3%	7.1%	9.3%	13.0%	17.6%	27.7%	32.4%
Reno**	3.0%	5.0%	3.0%	8.0%	6.0%	13.0%
Phoenix	2.1%	3.2%	2.3%	4.2%	4.5%	7.4%	24.6%	27.5%
Sacramento	4.5%	5.4%	5.5%	6.9%	10.0%	12.4%	17.3%	19.3%
Minneapolis	2.5%	3.0%	10.9%	12.4%	13.4%	15.4%
Mid-Atlantic	4.4%	4.7%	13.6%	14.0%	18.0%	18.8%	18.3%	18.2%
So. California*	3.1%	4.0%	3.9%	5.1%	7.0%	9.1%	22.7%	25.2%
Bay Area CA*	2.2%	2.8%	2.5%	2.9%	4.7%	5.7%	24.0%	24.3%
Riverside	2.4%	3.5%	3.2%	5.0%	5.6%	8.5%	18.2%	19.2%
San Bernardino	2.4%	4.1%	3.2%	5.2%	5.6%	9.3%	20.7%	21.8%
Florida SF	2.7%	3.9%	12.0%	21.0%	14.7%	25.0%	32.0%	38.8%
Florida C/TH	1.6%	2.5%	9.5%	15.3%	11.1%	17.8%	62.0%	66.2%
Miami MSA SF	3.9%	6.6%	13.9%	19.6%	17.7%	26.2%	32.9%	40.0%
Miami MSA C/TH	1.9%	3.0%	12.6%	19.1%	14.5%	22.1%	64.2%	69.6%
Spokane					11.5%	18.1%
Chicago (city)					19.6%	21.9%
Hampton Roads					18.2%	22.7%
Spokane					11.5%	18.1%
Northeast Florida					19.9%	30.9%
Spokane					11.5%	18.1%
Rhode Island					14.0%	17.3%
Toledo							30.6%	32.7%
Tucson							25.8%	32.0%
Knoxville							22.1%	22.9%
Peoria							21.6%	23.7%
Georgia***							21.0%	23.2%
Omaha							16.3%	16.1%
Pensacola					17.0%	28.0%	28.3%	33.4%
Richmond VA MSA			9.8%	11.9%			17.3%	18.0%
Memphis****			15.0%	15.3%			32.3%	37.6%
Springfield IL**			11.2%	12.1%			18.1%	N.A.
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 4/29/2016 10:08:00 AM

Chicago PMI: April Chicago Business Barometer Down 3.2 Points to 50.4

The Chicago Business Barometer decreased 3.2 points to 50.4 in April from 53.6 in March led by a fall in New Orders and a sharp drop in Order Backlogs. It marks a slow start to the second quarter, with most measures down from levels seen a year earlier.
...
The decline in the Barometer was led by a fall in New Orders, leaving it at the lowest level since December 2015.
...
Chief Economist of MNI Indicators Philip Uglow said, “This was a disappointing start to the second quarter, with the Barometer barely above the neutral 50 mark in April. Against a backdrop of softer domestic demand and the slowdown abroad, panellists are now more worried about the impact a rate hike might have on business than they were at the same time last year.”
emphasis added

This was below the consensus forecast of 53.4.


Click on graph for larger image.

The final University of Michigan consumer sentiment index for April was at 89.0, down from 91.0 in March:

"Consumer sentiment continued its slow decline in late April due to weakening expectations for future growth, although their views of current economic conditions remained positive. All of the April decline was in the Expectations component, which fell by 4.8% from one month ago and by 12.6% from a year ago and by 14.7% from its January 2015 peak. The retreat from the 2015 peaks was evident across a wide range of expectations about prospects for the national economy. The size of the decline, while troublesome, is still far short of indicating an impending recession. The decline is all the more remarkable given that consumers' assessments of current economic conditions, including their personal finance, have remained largely unchanged at very positive levels during the past year."
emphasis added

by Calculated Risk on 4/29/2016 08:33:00 AM

The BEA released the Personal Income and Outlays report for March:

Personal income increased $57.4 billion, or 0.4 percent, ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $12.8 billion, or 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased less than 0.1 percent in March, compared with an increase of 0.3 percent in February. ... The price index for PCE increased 0.1 percent in March, in contrast to a decrease of 0.1 percent in February. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent.

The March PCE price index increased 0.8 percent from March a year ago. The March PCE price index, excluding food and energy, increased 1.6 percent from March a year ago.

On inflation: The PCE price index increased 0.8 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in March (slightly lower than in February).

by Calculated Risk on 4/28/2016 09:17:00 PM

From Merrill Lynch on April NFP:

Nonfarm payroll growth likely posted a solid 200,000 in April, driven once more by service-providing firms. Of this, government hiring likely contributed 5,000, which is a more modest clip than the 20,000 pop in March. ...

We look for the unemployment rate to hold at 5.0%, assuming the participation rate holds steady. However, there is a risk it heads higher, following the recent trend, which could boost the unemployment rate. The participation rate has seen an impressive recovery since September of last year, rising to 63% from 62.4%. A robust labor market has attracted many workers back into the labor market, and it is more likely than not that this trend generally continues in the near term. However, increased labor supply also means delayed wage pressures: we are looking for only 0.2% monthly growth in average hourly earnings. This would leave the yoy growth rate unchanged at 2.3%, though this is still greater than the 2% pace seen earlier in this cycle. ...

Friday:
• At 8:30 AM ET, Personal Income and Outlays for March. The consensus is for a 0.3% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:45 AM, Chicago Purchasing Managers Index for April. The consensus is for a reading of 53.4, down from 53.6 in March.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 90.4, up from the preliminary reading 89.7.

by Calculated Risk on 4/28/2016 04:45:00 PM

Earlier today, the Census Bureau released the Residential Vacancies and Homeownership report for Q1 2016.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 63.5% in Q1, from 63.8% in Q4.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy declined to 1.7% in Q1. 

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate was unchanged at 7.0% in Q1.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate, but this does suggest the rental vacancy rate might have bottomed.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies and the homeownership rate are probably close to the bottom.

by Calculated Risk on 4/28/2016 01:45:00 PM

The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) increased at a 14.8% annual rate in Q1.  Equipment investment decreased at a 8.6% annual rate, and investment in non-residential structures decreased at a 10.7% annual rate.   On a 3 quarter trailing average basis, RI (red) is positive,  equipment (green) is close to zero, and nonresidential structures (blue) is negative.

Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery - and is now causing a decline.  Other areas of nonresidential are now increasing significantly.  I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to be solid going forward (except for energy and power), and for the economy to continue to grow at a steady pace.


The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - has been moving sideways.  Other investment is generally trending up as a percent of GDP, except for nonresidential structures due to less investment in energy and power.

by Calculated Risk on 4/28/2016 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Declined Modestly

The Federal Reserve Bank of Kansas City released the April 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 modestly.

“Factories reported a modest decline in activity in April, but expectations for future activity increased to their highest reading of the year”, said Wilkerson.
...
Tenth District manufacturing activity continued to decline modestly, while producers’ expectations for future activity improved considerably. Most price indexes moved slightly higher in April, but remained at low levels.

The month-over-month composite index was -4 in April, up from -6 in March and -12 in February ...
emphasis added

The Kansas City region was hit hard by lower oil prices and the stronger dollar, but the impact is fading.

This was the last of the regional Fed surveys for April.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through April), and five Fed surveys are averaged (blue, through April) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through March (right axis).

It seems likely the ISM manufacturing index will show slow expansion again in April.

by Calculated Risk on 4/28/2016 08:45:00 AM

The DOL reported:

In the week ending April 23, the advance figure for seasonally adjusted initial claims was 257,000, an increase of 9,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 247,000 to 248,000. The 4-week moving average was 256,000, a decrease of 4,750 from the previous week's revised average. This is the lowest level for this average since December 8, 1973 when it was 252,250. The previous week's average was revised up by 250 from 260,500 to 260,750.

There were no special factors impacting this week's initial claims. This marks 60 consecutive weeks of initial claims below 300,000, the longest streak since 1973.

The previous week was revised up by 1,000.

Note: 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 256,000.

This is the lowest level for the four-week average since 1973.

This was below the consensus forecast of 260,000. The low level of the 4-week average suggests few layoffs.

by Calculated Risk on 4/28/2016 08:36:00 AM

From the BEA: Gross Domestic Product: First Quarter 2016 (Advance Estimate)

Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 0.5 percent in the first quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 1.4 percent.
...
The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter reflected a larger decrease in nonresidential fixed investment, a deceleration in PCE, a downturn in federal government spending, an upturn in imports, and larger decreases in private inventory investment and in exports that were partly offset by an upturn in state and local government spending and an acceleration in residential fixed investment.
emphasis added

The advance Q1 GDP report, with 0.5% annualized growth, was below expectations of a 0.7% increase.

Personal consumption expenditures (PCE) increased at a 1.9% annualized rate in Q1, down from 2.4% in Q4.   Residential investment (RI) increased at a 14.8% pace. However equipment investment decreased at a 8.6% annualized rate, and investment in non-residential structures decreased at a 10.7% pace (due to the decline in oil prices).

The key negatives were investment in inventories (subtracted 0.33 percentage point), trade (subtracted 0.34 percentage point), nonresidential investment (subtracted 0.76 percentage points) and Federal government spending (subtracted 0.11 percentage points).

I'll have more later ...