by Calculated Risk on 12/27/2016 05:55:00 PM

The Case-Shiller house price indexes for October were released this morning. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: November Case-Shiller Forecast: Expect a (Very) Modest Slowdown

After several months in a row of accelerating growth in U.S. home prices, the pace of appreciation is expected to slow somewhat in November, according to Zillow’s November Case-Shiller forecast.

The November Case-Shiller national index is expected to grow 5.6 percent year-over-year and 0.7 percent month-to-month (seasonally adjusted), on par with the pace of annual growth and down slightly from the 0.9 percent monthly appreciation recorded in October. We expect the 10-city index to grow 4.1 percent year-over-year and 0.4 percent (SA) from October, and the 20-city index is expected to grow 5 percent annually and 0.5 percent (SA) from October. Both annual and seasonally adjusted monthly appreciation forecasted for November for the 10- and 20-city indices would be slower than that recorded in October.

Zillow’s November Case-Shiller forecast is shown in the table below. These forecasts are based on today’s October Case-Shiller data release and the November 2016 Zillow Home Value Index. The November S&P CoreLogic Case-Shiller Indices will not be officially released until Tuesday, January 31.

The year-over-year change for the 10-city and 20-city indexes will probably be slightly lower in the November report compared to the October report.  The change for the National index will probably be about the same.

by Calculated Risk on 12/27/2016 02:54:00 PM

Yesterday I posted some questions for next year: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

7) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 6% or so in 2016. What will happen with house prices in 2017?

The following graph shows the year-over-year change through October 2016, in the seasonally adjusted Case-Shiller Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Click on graph for larger image.

The Composite 10 SA was up 4.3% compared to October 2015, the Composite 20 SA was up 5.1% and the National index SA was up 5.6% year-over-year.  Other house price indexes have indicated similar gains (see table below).

Although I mostly use Case-Shiller, I also follow several other price indexes. The following table shows the year-over-year change for several house prices indexes.

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Oct-16	5.1%
Case-Shiller National	Oct-16	5.6%
CoreLogic	Oct-16	6.7%
Zillow	Nov-16	6.5%
Black Knight	Oct-16	5.6%
FHFA Purchase Only	Oct-16	6.2%

Most analysts are forecasting prices will increase in the 3% to 5% range in 2017.

Inventories will probably remain low in 2017, although I expect inventories to increase on a year-over-year basis by December of 2017.  Low inventories, and a decent economy suggests further price increases in 2017.

Perhaps higher mortgage rates will slow price appreciation.  If we look back at the "taper tantrum" in 2013, price appreciation slowed somewhat over the next year - but that was from a high level.  In June 2013, the Case-Shiller National index was up 9.3% year-over-year.  By June 2014, the index was up 6.3% year-over-year.

If inventory increases year-over-year as I expect by December 2017, it seems likely that price appreciation will slow to the low-to-mid single digits.

Here are the Ten Economic Questions for 2017 and a few predictions:

• Question #1 for 2017: What about fiscal and regulatory policy in 2017?
• Question #2 for 2017: How much will the economy grow in 2017?
• Question #3 for 2017: Will job creation slow further in 2017?
• Question #4 for 2017: What will the unemployment rate be in December 2017?
• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
• Question #7 for 2017: How much will wages increase in 2017?
• Question #8 for 2017: How much will Residential Investment increase?
• Question #9 for 2017: What will happen with house prices in 2017?
• Question #10 for 2017: Will housing inventory increase or decrease in 2017?

by Calculated Risk on 12/27/2016 11:55:00 AM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.6% year-over-year in October

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the National Index, not seasonally adjusted (NSA) was reported as being at a new nominal high. The seasonally adjusted (SA) index was reported as being at the previous the bubble peak. However, in real terms, the National index (SA) is still about 15.3% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 5%. In October, the index was up 5.6% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $277,000 today adjusted for inflation (38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through October) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at the bubble peak, and the Case-Shiller Composite 20 Index (SA) is back to July 2005 levels, and the CoreLogic index (NSA) is back to August 2005.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to March 2004 levels, the Composite 20 index is back to November 2003, and the CoreLogic index back to February 2004.

In real terms, house prices are back to late 2003 / early 2004 levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to September 2003 levels, the Composite 20 index is back to April 2003 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are back to late 2003  - and the price-to-rent ratio maybe moving a little more sideways now.

by Calculated Risk on 12/27/2016 09:10:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for October ("October" is a 3 month average of August, September and October prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: The S&P CoreLogic Case-Shiller National Index Extends New High as Price Gains Continues

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.6% annual gain in October, up from 5.4% last month. The 10-City Composite posted a 4.3% annual increase, up from 4.2% the previous month. The 20-City Composite reported a year-over-year gain of 5.1%, up from 5.0% in September.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last nine months. In October, Seattle led the way with a 10.7% year-over-year price increase, followed by Portland with 10.3%, and Denver with an 8.3% increase. 10 cities reported greater price increases in the year ending October 2016 versus the year ending September 2016.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in October. The 10-City Composite remains unchanged and the 20-City Composite posted a 0.1% increase in October. After seasonal adjustment, the National Index recorded a 0.9% month-overmonth increase, while both the 10-City and 20-City Composites each reported a 0.6% month-overmonth increase. 13 of 20 cities reported increases in September before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.
emphasis added

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 10.0% from the peak, and up 0.6% in October (SA).

The Composite 20 index is off 7.8% from the peak, and up 0.6% (SA) in October.

The National index is at the previous peak (SA), and up 0.85% (SA) in October.  The National index is up 35.1% from the post-bubble low set in December 2011 (SA).

The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.3% compared to October 2015.

The Composite 20 SA is up 5.1% year-over-year.

The National index SA is up 5.6% year-over-year.

Note: According to the data, prices increased in all 20 cities month-over-month seasonally adjusted.

I'll have more later.

by Calculated Risk on 12/26/2016 07:27:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

10) Housing Inventory: Housing inventory declined in 2015 and 2016. Will inventory increase or decrease in 2017?

Tracking housing inventory is very helpful in understanding the housing market.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2016.

Click on graph for larger image.

According to the NAR, inventory decreased to 1.85 million in November 2016 from 2.04 million in November 2015.

This was the lowest level for the month of November since 2000.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 9.3% year-over-year in November compared to November 2015. (blue line).  Note that the blue line (year-over-year change) turned slightly positive in 2013, but has been negative since mid-2015.

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.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I've heard reports of more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.  But we haven't seen a change in trend for inventory yet.

The recent increase in interest rates might impact inventory.  Looking back at the "taper tantrum" in May and June 2013 suggests we might see more inventory in the coming months.  In May 2013, inventory was down 13% year-over-year, but by September 2013, inventory was unchanged year-over-year.    However that change in year-over-year inventory was part of an ongoing trend (look at 2013 in the second graph above), and the "taper tantrum" might not have been the cause.

I was wrong on inventory last year, but right now my guess is active inventory will increase in 2017 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in December 2017).   My reasons for expecting more inventory are 1) inventory is historically low (lowest for November since 2000), 2) and the recent increase in interest rates.

If correct, this will keep house price increases down in  2017 (probably lower than the 5% or so gains in 2014, 2015 and 2016).

Here are the Ten Economic Questions for 2017 and a few predictions:

• Question #1 for 2017: What about fiscal and regulatory policy in 2017?
• Question #2 for 2017: How much will the economy grow in 2017?
• Question #3 for 2017: Will job creation slow further in 2017?
• Question #4 for 2017: What will the unemployment rate be in December 2017?
• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
• Question #7 for 2017: How much will wages increase in 2017?
• Question #8 for 2017: How much will Residential Investment increase?
• Question #9 for 2017: What will happen with house prices in 2017?
• Question #10 for 2017: Will housing inventory increase or decrease in 2017?

by Calculated Risk on 12/26/2016 11:56:00 AM

Here is a review of the Ten Economic Questions for 2016.

Here are my ten questions for 2017. I'll follow up with some thoughts on each of these questions.

The purpose of these questions is to provide a framework to think about how the U.S. economy will perform in 2017, and - when there are surprises - to adjust my thinking.

1) US Policy: There is significant uncertainty as to fiscal and regulatory policy in 2017. This is probably the biggest risk for the US economy this coming year. I assume some sort of tax cuts will be passed, possibly some additional infrastructure spending, and possibly some deregulation.

These is the potential for significant policy mistakes - like defaulting on the debt (seems unlikely) - or the start of a trade war. Usually at this point in the transition process, there is a pretty clear understanding of the new administration's policy proposals, but not this time. I'll write much more about this issue.

2) Economic growth: Heading into 2017, most analysts are pretty sanguine and expecting some pickup in growth due to tax cuts and infrastructure spending.   How much will the economy grow in 2017?

3) Employment: Through November, the economy has added almost 2,000,000 jobs this year, or 180,000 per month. As expected, this was down from the 230 thousand per month in 2015.  Will job creation in 2017 be as strong as in 2016?  Or will job creation be even stronger, like in 2014 or 2015?  Or will job creation slow further in 2017?

4) Unemployment Rate: The unemployment rate was at 4.6% in November, down 0.4 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 4.5% to 4.6% range in Q4 2017.  What will the unemployment rate be in December 2017?

5) Inflation: The inflation rate has increased a little recently, and some key measures are now close to the the Fed's 2% target. Will core inflation rate rise in 2017? Will too much inflation be a concern in 2017?

6) Monetary Policy:  The Fed raised rates this month, and now the question is how much will the Fed raise rates in 2017?  The market is pricing in three 25 bps rate hikes in 2017, and most analysts expect two to three hikes in 2017.   Will the Fed raise rates in 2017, and if so, by how much?

7) Real Wage Growth: Wage growth picked up in 2016.  How much will wages increase in 2017?

8) Residential Investment: Residential investment (RI) was sluggish in 2016, although new home sales were up solidly.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2017?  How about housing starts and new home sales in 2017?

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 5% to 6% or so in 2016.   What will happen with house prices in 2017?

10) Housing Inventory: Housing inventory declined in 2015 and 2016.  Will inventory increase or decrease in 2017?

There are other important questions, but these are the ones I'm focused on right now.  I'll write on each of these questions over the next couple of weeks.

by Calculated Risk on 12/26/2016 09:53:00 AM

The automakers will report December vehicle sales on Wednesday, January 4th.

Note: There were 27 selling days in December 2016, down from 28 in December 2015.

From WardsAuto: December Light-Vehicle Sales to Push U.S. Market to New Record

December U.S. light-vehicle sales are forecast to finish strong enough for 2016 to top 2015’s record 17.396 million units. However, actual volume largely will be determined by results in the final third of the month, because a major portion of December’s deliveries typically occur after Christmas.

The forecast 17.7 million-unit seasonally adjusted annual rate is below November’s 17.8 million, but above December 2015’s 17.4 million.
...
Despite the drop in December’s volume, total 2016 sales will end at 17.41 million units, barely edging out the all-time high set last year.
emphasis added

Here is a table (source: BEA) showing the 5 top years for light vehicle sales through November, and the top 5 full years. 2016 will probably finish in the top 3, and could be the best year ever - just beating last year.

Light Vehicle Sales, Top 5 Years and Through November
	Through November		Full Year
	Year	Sales (000s)	Year	Sales (000s)
1	2000	16,109	2015	17,396
2	2001	15,812	2000	17,350
3	2016	15,783	2001	17,122
4	2015	15,766	2005	16,948
5	1999	15,498	1999	16,894

by Calculated Risk on 12/25/2016 08:19:00 AM

Happy Holidays and Merry Christmas to All!

Whose woods these are I think I know.
His house is in the village though;
He will not see me stopping here
To watch his woods fill up with snow.

My little horse must think it queer
To stop without a farmhouse near
Between the woods and frozen lake
The darkest evening of the year.

He gives his harness bells a shake
To ask if there is some mistake.
The only other sound’s the sweep
Of easy wind and downy flake.

The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.

"Stopping by Woods on a Snowy Evening" by Robert Frost

Enjoy the season!

by Calculated Risk on 12/24/2016 08:09:00 AM

This will be a light week for economic data.

Happy Holidays and Merry Christmas!

----- Monday, Dec 26th -----
All US markets will be closed in observance of the Christmas Holiday.

----- Tuesday, Dec 27th-----
9:00 AM ET: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the September 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.1% year-over-year increase in the Comp 20 index for October. The Zillow forecast is for the National Index to increase 5.7% year-over-year in October.

----- Wednesday, Dec 28th -----
10:00 AM: Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

----- Thursday, Dec 29th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 262 thousand initial claims, down from 275 thousand the previous week.

----- Friday, Dec 30th -----
9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a reading of 57.0, down from 57.6 in November.

by Calculated Risk on 12/23/2016 05:26:00 PM

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

On distressed: The total "distressed" share is down year-over-year in all of these markets.

Short sales and foreclosures are mostly down in 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
	Nov- 2016	Nov- 2015	Nov- 2016	Nov- 2015	Nov- 2016	Nov- 2015	Nov- 2016	Nov- 2015
Las Vegas	4.0%	7.1%	6.5%	6.2%	10.5%	13.3%	26.9%	33.2%
Reno**	2.0%	4.0%	3.0%	4.0%	5.0%	8.0%
Phoenix	1.5%	2.9%	2.2%	3.8%	3.7%	6.7%	23.4%	29.1%
Sacramento	2.6%	4.4%	2.4%	3.6%	5.0%	8.0%	12.9%	22.9%
Minneapolis	1.8%	2.6%	4.8%	9.6%	6.6%	12.2%	12.7%	16.6%
Mid-Atlantic	3.1%	3.9%	9.4%	11.9%	12.6%	15.8%	17.5%	20.9%
Florida SF	2.2%	3.7%	8.1%	15.3%	10.3%	19.0%	29.5%	37.7%
Florida C/TH	1.3%	2.4%	6.1%	13.4%	7.4%	15.7%	57.2%	65.4%
Chicago (city)					15.5%	18.6%
Spokane					6.7%	9.8%
Northeast Florida					13.7%	26.2%
Rhode Island					9.2%	11.2%
Tucson							23.1%	32.2%
Knoxville							21.3%	26.0%
Peoria							23.2%	27.2%
Georgia***							19.7%	25.2%
Omaha							18.1%	20.6%
Richmond VA			8.8%	10.2%			17.2%	21.0%
Memphis			10.9%	15.3%
Springfield IL**			5.6%	8.6%
*share of existing home sales, based on property records **Single Family Only ***GAMLS