by Calculated Risk on 8/26/2016 03:40:00 PM

The automakers will report August vehicle sales on Thursday, Sept 1st.

Note:  There were 26 selling days in August, the same as in August 2015.

From WardsAuto: Forecast: U.S. Light Vehicles Sales Weaken in August

A WardsAuto forecast calls for August U.S. light-vehicle sales to reach a 17.4 million-unit seasonally adjusted annual rate, less than like-2015’s 17.7 million and July’s 17.8 million, but ahead of the 17.2 million recorded over the first seven months of this year.
emphasis added

From J.D. Power: August Decline in New-Vehicle Sales Fourth in Last Six Months

The SAAR for total sales is projected at 16.8 million units in August 2016, down from 17.7 million units a year ago.

Vehicle sales are moving more sideways now.

by Calculated Risk on 8/26/2016 11:59:00 AM

CR Note: When the New and Existing home sales reports were released this week, I was out of town and didn't post any graphs. Here are a few graphs and comments on the reports.

The new home sales report for July was very strong at 654,000 on a seasonally adjusted annual rate basis (SAAR) - the highest since October 2007 - however combined sales for April, May and June were revised down by 12 thousand SAAR.

Sales were up 31.3% year-over-year (YoY) compared to July 2015. And sales are up 12.4% year-to-date compared to the same period in 2015.

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

As always, I wouldn't read too much into data for any one month - this series is volatile and the revisions are frequently significant.

However it does appear new home sales are approaching normal levels (I've been expecting sales to increase to at least 800 thousand - but I expected the recovery to be slow).

The second graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  Sales to date are up 12.4% year-over-year, mostly because of the solid growth starting in Q2.

There will probably be solid year-over-year growth in Q3 this year too.

Overall  I expected lower growth this year, in the 4% to 8% range.  Slower growth seemed likely this year because Houston (and other oil producing areas) will have a problem this year.

So far new home sales have been stronger than my forecast.

The third graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July (5.39 million SAAR) were 3.2% lower than last month, and were 1.6% below the July 2015 rate.

For existing homes, inventory is still key.  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 5.8% year-over-year in June). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through July 2016. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down, and this ratio will probably continue to trend down over the next several years.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 8/26/2016 10:09:00 AM

From Fed Chair Janet Yellen: The Federal Reserve's Monetary Policy Toolkit: Past, Present, and Future. Excerpt:

Looking ahead, the FOMC expects moderate growth in real gross domestic product (GDP), additional strengthening in the labor market, and inflation rising to 2 percent over the next few years. Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives. Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook.
...
And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy. In addition, the level of short-term interest rates consistent with the dual mandate varies over time in response to shifts in underlying economic conditions that are often evident only in hindsight. For these reasons, the range of reasonably likely outcomes for the federal funds rate is quite wide ...
emphasis added

by Calculated Risk on 8/26/2016 08:33:00 AM

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

Real gross domestic product increased at an annual rate of 1.1 percent in the second quarter of 2016, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 1.2 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; revisions to the components of GDP are small ...
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 4.2% to 4.4%. (Solid PCE).  Residential investment was revised down from -6.1% to -7.7%. This was close to the consensus forecast.

by Calculated Risk on 8/25/2016 08:32:00 PM

Yellen time updated (ht SBG)

CR Note: It was an awesome trip, but it is great to be home. I'll be posting some catch-up graphs and comments on new and existing home sales tomorrow. Best to All.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 2nd quarter 2016 (Second estimate). The consensus is that real GDP increased 1.1% annualized in Q2, down from 1.2% in the advance estimate.

• At 10:00 AM, Fed Chair Janet Yellen will speak at the annual economic symposium in Jackson Hole, Wyoming. The symposium topic is “Designing Resilient Monetary Policy Frameworks for the Future”.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 90.5, up from the preliminary reading 90.4.

by Calculated Risk on 8/25/2016 05:39:00 PM

CR Note: I'm back from NYC. Had a great time!

The DOL reported:

In the week ending August 20, the advance figure for seasonally adjusted initial claims was 261,000, a decrease of 1,000 from the previous week's unrevised level of 262,000. The 4-week moving average was 264,000, a decrease of 1,250 from the previous week's unrevised average of 265,250.

There were no special factors impacting this week's initial claims. This marks 77 consecutive weeks of initial claims below 300,000, the longest streak since 1970.

The previous week was unrevised.

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 264,000.

This was lower than the consensus forecast of 265,000. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 8/24/2016 06:40:00 PM

As a reminder: NAR Existing Home Sales Report vs. Tom Lawler's LEHC Projection from Last Week

Existing Home Sales (SAAR): NAR, 5.39 million; LEHC, 5.41 million; “Consensus”, 5.52 million

Inventory of EHS for Sale: NAR, 2.13 million; LEHC, 2.14 million.

YOY % Change, Median Existing SF Home Sales Price: NAR, 5.4%; LEHC, 5.3%.

Note: Thursday is a travel day - no posting until later in the day.

Thursday:
At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 265 thousand initial claims, up from 262 thousand the previous week.

Also at 8:30 AM, Durable Goods Orders for June from the Census Bureau. The consensus is for a 3.7% increase in durable goods orders.

At 11:00 AM, Kansas City Fed Survey of Manufacturing Activity for August.

by Calculated Risk on 8/24/2016 10:06:00 AM

CR Note: I'm in NYC and I will post graphs when I return home.

From the NAR: Existing-Home Sales Lose Steam in July

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2 percent to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June. For only the second time in the last 21 months 2, sales are now below (1.6 percent) a year ago (5.48 million).

Total housing inventory at the end of July inched 0.9 percent higher to 2.13 million existing homes available for sale, but is still 5.8 percent lower than a year ago (2.26 million) and has now declined year-over-year for 14 straight months. Unsold inventory is at a 4.7-month supply at the current sales pace, which is up from 4.5 months in June.

Sales in July (5.39 million SAAR) were 3.2% lower than last month, and were 1.6% below the July 2015 rate.

According to the NAR, inventory increased to 2.13 million in July from 2.11 million in June.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

Inventory decreased 5.8% year-over-year in July compared to July 2015.  

Months of supply was at 4.7 months in July.

This was below consensus expectations (but not a surprise for CR readers). For existing home sales, a key number is inventory - and inventory is still low. I'll have more after I return home.

by Calculated Risk on 8/24/2016 07:00:00 AM

CR Note: I'm in NYC, graphs will be posted next week.

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 2.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 19, 2016.

... The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 8 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.67 percent from 3.64 percent, with points increasing to 0.34 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

by Calculated Risk on 8/23/2016 05:54:00 PM

Note: I'm in New York and posting will not be frequent (too much to do and see).

Thanks to Joe Weisenthal for having me on Bloomberg's WDYM. And Barry Ritholtz on his MIB radio and podcast.

Wednesday:
At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

At 9:00 AM, FHFA House Price Index for June 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.3% month-to-month increase for this index.

At 10:00 AM, Existing Home Sales for July from the National Association of Realtors (NAR). The consensus is for 5.52 million SAAR, down from 5.57 million in June.

Housing economist Tom Lawler expects the NAR to report sales of 5.41 million SAAR in July, down 2.9% from June’s preliminary pace.

Hint: Lawler isn't always closer, but I'd take the under on the consensus Wednesday.