by Calculated Risk on 6/21/2016 04:23:00 PM

From Andrew Khouri at the LA Times: Orange County home prices rise above their 2007 bubble-era peak

Median home prices in Orange County rose in May to surpass their bubble-era peak in 2007, making the county the first in Southern California where that has happened, according to a new report.
...
May's median in Los Angeles County — $525,000 — is still 4.5% below the county’s bubble-era peak of $550,000. Riverside County is 23.6% below, San Bernardino County 25% below, San Diego County 5.3% below and Ventura County 17.9% below.

This brings up a few important points ...

1. This is the median price - not a repeat sales index - and the median price can be impacted by the mix of homes sold (not as useful as a repeat sales index).

2. As Khouri notes in the article, these are nominal prices. When adjusted for inflation (real prices), prices are still 13% below the bubble peak.

3.  This is not a bubble.  A bubble requires both excess appreciation and speculation, and there is a little evidence of speculation - these are qualified buyers who will not default if prices decline (unlike many buyers during the bubble).

4. Note that the central / coastal areas are closer to the previous peak than the outlying areas.  This is the typical pattern; the price increases start in the central / coastal areas, and then move inland as the cycle matures.  Plus the inland areas saw the most speculation during the bubble - especially using subprime loans - and it will take longer for prices to reach a new peak.

by Calculated Risk on 6/21/2016 01:01:00 PM

Here is an indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Continues Solid Growth in June; Signals Higher U.S. Business Activity Through End Of The Year

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.8 percent in June following a revised 0.9 percent increase in May and 0.7 percent increase in April. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 2.5 percent over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7 percent year-over-year gain from 2014. On an unadjusted basis the CAB jumped 0.4 percent in June, following a similar 0.4 percent gain in May. The CAB is signaling higher U.S. business activity through the end of the year.
...
AApplying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

Currently CAB has increased over the last three months, and this suggests an increase in Industrial Production over the next year.

by Calculated Risk on 6/21/2016 10:04:00 AM

Federal Reserve Chair Janet Yellen testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C. (starts at 10 AM ET).  An excerpt on risks:

The latest readings on the labor market and the weak pace of investment illustrate one downside risk--that domestic demand might falter. In addition, although I am optimistic about the longer-run prospects for the U.S. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future. Vulnerabilities in the global economy also remain. Although concerns about slowing growth in China and falling commodity prices appear to have eased from earlier this year, China continues to face considerable challenges as it rebalances its economy toward domestic demand and consumption and away from export-led growth. More generally, in the current environment of sluggish growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of and appetite for risk can change abruptly. One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A U.K. vote to exit the European Union could have significant economic repercussions. For all of these reasons, the Committee is closely monitoring global economic and financial developments and their implications for domestic economic activity, labor markets, and inflation.
emphasis added

Here is the C-Span Link

Here is the Bloomberg TV link.

by Calculated Risk on 6/21/2016 09:16:00 AM

From John Robertson at the Atlanta Fed Macroblog: Wage Growth for Job Stayers and Switchers Added to the Atlanta Fed's Wage Growth Tracker

The Atlanta Fed's Wage Growth Tracker (WGT) moved higher again in May—the third increase in a row and consistent with a labor market that is continuing to tighten. At 3.5 percent, the WGT is at a level last seen in early 2009.

As was noted in an early macroblog post, when the labor market is tightening, people changing jobs experience higher median wage growth than those who remain in the same job. Median wage growth for job switchers has significantly outpaced that of job stayers in recent months. For job stayers, the May WGT was 3.0 percent, the same as in April, whereas for people switching jobs the median WGT increased from 4.1 percent to 4.3 percent in May (the highest reading since December 2007; see the chart).

Click on graph for larger image.

The Wage Growth Tracker is another measure of wages. From the Atlanta Fed:

The Atlanta Fed's Wage Growth Tracker is a measure of the wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.

This measure is indicating a pickup in wages, especially for job switchers.

by Calculated Risk on 6/20/2016 05:27:00 PM

From Kate Davidson at the WSJ: What to Watch for in Janet Yellen’s Congressional Testimony

Central bank watchers will hear from the Fed chief for the fourth time in as many weeks on Tuesday when she appears before the Senate Banking Committee for her semiannual monetary policy testimony. Ms. Yellen will return to the Hill on Wednesday for round two before the House Financial Services Committee.

The timing of these so-called Humphrey-Hawkins hearings is of note. They come just days after the Fed’s latest policy meeting and before a U.K. referendum on whether to the leave the European Union. They also are the last scheduled chance lawmakers ... will have to publicly question the Fed chief before voters head to the polls in November.

Tuesday:
• At 10:00 AM ET, Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Continue Higher to Begin Volatile Week

Mortgage rates continued higher today, and at a quicker pace than the modest increase seen at the end of last week. Financial markets are undergoing a change of heart regarding their approach to Brexit (market shorthand for a "British exit" from the European Union). Brexit fears had helped drive interest rates to long-term lows in the US and to all-time lows in Europe.
...
The bonds that underlie mortgage rates are somewhat more insulated from this global market drama, but were still noticeably affected (meaning rates moved higher). The most prevalent conventional 30yr fixed rate quotes are now back into a relatively balanced range between 3.5% and 3.625% on top tier scenarios.
emphasis added

by Calculated Risk on 6/20/2016 01:07:00 PM

This is a key distressed market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

Inventory was up 5.5% year-over-year in May.  This is the third consecutive months with a YoY increase in inventory, following fifteen consecutive months of YoY declines in Phoenix.  This could be a significant change.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in May were up 6.4% year-over-year.

2) Cash Sales (frequently investors) were down to 21.8% of total sales.

3) Active inventory is now up 5.5% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster -  Prices were up 6.3% in 2015 according to Case-Shiller.

Now inventory is increasing a little again, and - if this trend continues in Phoenix - price increases will probably slow.

May Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Inventory	YoY Change Inventory
May-08	5,6371	---	1,062	18.8%	54,1611	---
May-09	9,284	64.7%	3,592	38.7%	39,902	-26.3%
May-10	9,067	-2.3%	3,341	36.8%	41,326	3.6%
May-11	9,811	8.2%	4,523	46.1%	31,661	-23.4%
May-12	8,445	13.5%	3,907	46.3%	20,162	-36.3%
May-13	9,440	11.8%	3,669	38.9%	19,734	-2.1%
May-14	7,442	-21.2%	2,193	29.5%	29,091	47.4%
May-15	8,293	11.4%	1,988	24.0%	24,616	-15.4%
May-16	8,820	6.4%	1,931	21.9%	25,980	5.5%
1 May 2008 does not include manufactured homes, ~100 more

by Calculated Risk on 6/20/2016 10:55:00 AM

Way back in 2006 I disagreed with some analysts on the outlook for the Inland Empire in California. I wrote:

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

And sure enough, the economies of housing dependent areas like the Inland Empire were devastated during the housing bust. The good news is the Inland Empire has mostly recovered.

Click on graph for larger image.

This graph shows the unemployment rate for the Inland Empire (using MSA: Riverside, San Bernardino, Ontario), and also the number of construction jobs as a percent of total employment.

The unemployment rate is falling, and is down to 5.6% (down from 14.4% in 2010). And construction employment is up from the lows (as a percent of total employment), but still fairly low.

Overall the outlook for the Inland Empire is much better today.

by Calculated Risk on 6/20/2016 08:47:00 AM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their April 2016 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.1% from March to April (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 1.6% (NSA), the 20-MSA RPI increased 1.5%, and the 30-MSA RPI increased 1.4% in April. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

From FNC: FNC Index: April Home Prices Up 1.1%

The latest FNC Residential Price Index™ (RPI) indicated U.S. home prices rose quickly in April, up 1.1% at a seasonally unadjusted rate. On a year-over-year basis, prices continue to enjoy modest growth, rising 5.6% from a year ago.

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The index is still down 12.2% 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 April 2016. 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.

Note: The April Case-Shiller index will be released on Tuesday, June 28th.

by Calculated Risk on 6/19/2016 08:41:00 PM

The Brexit vote is on Thursday ...

Weekend:
• Schedule for Week of June 19, 2016

From CNBC: Pre-Market Data and Bloomberg futures: S&P are up 14 and DOW futures are up 140 (fair value).

Oil prices were down over the last week with WTI futures at $48.24 per barrel and Brent at $49.39 per barrel.  A year ago, WTI was at $60, and Brent was at $61 - so prices are down 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.33 per gallon (down about $0.45 per gallon from a year ago).

by Calculated Risk on 6/19/2016 11:43:00 AM

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.

From the Port of Los Angeles: Double-Digit Growth Propels Port of Los Angeles to Busiest May in Port History

Overall cargo volumes at the Port of Los Angeles increased nearly 11 percent in May compared to the same period last year, marking the busiest May in the Port’s 109-year history. Total volumes registered at 770,409 Twenty-Foot Equivalents (TEUs), with container growth of 8.7 percent for the first five months of 2016 compared to last year.

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 0.7% compared to the rolling 12 months ending in April.   Outbound traffic was up 0.4% compared to 12 months ending in April.

The downturn in exports over the last year was probably due to the slowdown in China and the stronger dollar.

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).

In general exports are moving sideways and imports are gradually increasing.