In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, May 03, 2017

MBA: Mortgage "Purchase Apps Up, Refis Down in Latest Weekly Survey"

by Calculated Risk on 5/03/2017 07:00:00 AM

From the MBA: Purchase Apps Up, Refis Down in Latest MBA Weekly Survey

Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 28, 2017.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 5 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) increased to 4.23 percent from 4.20 percent, with points decreasing to 0.32 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity remains low - and will not increase significantly unless rates fall sharply.


Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.

Even with the increase in mortgage rates late last year, purchase activity is still up year-over-year.

Tuesday, May 02, 2017

Wednesday: FOMC Announcement, ADP Employment, ISM non-mfg Survey

by Calculated Risk on 5/02/2017 06:26:00 PM

A few excerpts from an FOMC preview by Goldman Sachs economist Spencer Hill:

• We expect the FOMC to keep policy unchanged next week and see only limited changes to the statement.

• Similar to the March statement, we expect constructive comments on economic activity, as we think Fed officials will view the slowdown in reported growth last quarter as temporary in nature ...We do expect a brief acknowledgement of the softer March core inflation data ...
...
• We look for the balance of risk assessment and the characterization of current policy (“accommodative”) to remain unchanged. We also believe the statement will probably leave out any explicit mention of fiscal policy, given the lack of incremental clarity on the legislative outlook since the March meeting.
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, The ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in April, down from 263,000 added in March.

• At 10:00 AM, the ISM non-Manufacturing Index for April. The consensus is for index to increase to 55.8 from 55.2 in March.

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

U.S. Light Vehicle Sales at 16.8 million annual rate in April

by Calculated Risk on 5/02/2017 02:57:00 PM

Based on a preliminary estimate from WardsAuto (and some CR calculations), light vehicle sales were at a 16.79 million SAAR in April.

That is down 3% from April 2016, and up 1.6% from last month.

Vehicle Sales
Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for April (red, light vehicle sales of 16.79 million SAAR mostly from WardsAuto).

This was below the consensus forecast of 17.2 million for April.

After two consecutive years of record sales, it looks like sales will be down or move sideways in 2017.

Vehicle SalesThe second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Q1 2017 GDP Details on Residential and Commercial Real Estate

by Calculated Risk on 5/02/2017 01:14:00 PM

The BEA has released the underlying details for the Q1 advance GDP report.

The BEA reported that investment in non-residential structures increased at a 9.4% annual pace in Q1.  This is a turnaround from early last year when non-residential investment declined due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration increased substantially in Q1, from a $44.7 billion annual rate in Q4 2016 to a $70.6 billion annual rate in Q1 2017 - but is still down from a recent peak of $151 billion in Q4 2014 (down by more than one-half).

Excluding petroleum, non-residential investment in structures increased at a 10% annual rate in Q3.

Office Investment as Percent of GDPClick on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level.

Investment in offices increased in Q1, and is up 22% year-over-year - and is now almost as high as the housing bubble years as a percent of GDP.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was up year-over-year.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased further in Q1.  Lodging investment is up 15% year-over-year.

My guess is office and hotel investment growth will start to slow (office vacancies are still high, although hotel occupancy is near record levels).  But investment growth is still very strong this year.

Residential Investment Components The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Home improvement was the top category for five consecutive years following the housing bust ... but now investment in single family structures has been back on top for three years and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $257 billion (SAAR) (about 1.4% of GDP), and was up in Q1 compared to Q4.

Investment in home improvement was at a $238 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (about 1.3% of GDP).  Home improvement growth has been solid.

CoreLogic: House Prices up 7.1% Year-over-year in March

by Calculated Risk on 5/02/2017 09:29:00 AM

Notes: This CoreLogic House Price Index report is for March. The recent Case-Shiller index release was for February. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 7.1 Percent in March 2017

Home prices nationwide, including distressed sales, increased year over year by 7.1 percent in March 2017 compared with March 2016 and increased month over month by 1.6 percent in March 2017 compared with February 2017, according to the CoreLogic HPI.
...
“Home prices posted strong gains in March 2017, and the CoreLogic Home Price Index is only 2.8 percent from its 2006 peak,” said Dr. Frank Nothaft, chief economist for CoreLogic. “With a forecasted increase of almost 5 percent over the next 12 months, the index is expected to reach the previous peak during the second half of this year. Prices in more than half the country have already surpassed their previous peaks, and almost 20 percent of metropolitan areas are now at their price peaks. Nationally, price growth has gradually accelerated over the past half-year, while rent growth for single-family rental homes has slowly decelerated over the same period, according to the CoreLogic Single-family Rental Index, recording a 3 percent rise over the year through March.”

“A potent mix of strong job gains, household formation, population growth and still-attractive mortgage rates in the face of tight inventories are fueling a continuing surge in home prices across the U.S.,” said Frank Martell, president and CEO of CoreLogic. “Price gains were broad-based with 90 percent of metropolitan areas posting year-over-year gains. Major metropolitan areas were especially hot with CoreLogic data indicating that four of the largest 10 markets are now overvalued. Geographically, gains were strongest in the West with Washington showing the highest appreciation at almost 13 percent, and Seattle, Tacoma and Bellingham posting gains of 13 to 14 percent.
emphasis added
CoreLogic House Price Index Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.6% in March (NSA), and is up 7.1% over the last year.

This index is not seasonally adjusted, and this was another strong month-to-month increase.

The index is still 2.8% below the bubble peak in nominal terms (not inflation adjusted).

CoreLogic YoY House Price IndexThe second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last two years, but might have picked up recently (the recent pickup could be revised away).

The year-over-year comparison has been positive for five consecutive years since turning positive year-over-year in February 2012.

Monday, May 01, 2017

Tuesday: Auto Sales

by Calculated Risk on 5/01/2017 06:44:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged to Slightly Higher

Mortgage rates were unchanged to slightly higher today, keeping them in line with the previous 4 business days.  This 5-day block stands out from the previous trend that had taken rates generally lower since the middle of March, ultimately hitting the best levels of the year on April 18th.  At the time, a majority of lenders were quoting conventional 30yr fixed rates of 4.00% on top tier scenarios.

  While there are still several lenders at 4.0%, most have moved up to 4.125%. Most borrowers will be quoted the same NOTE rate today and Friday, but with higher upfront costs (thus making for a higher EFFECTIVE rate).
emphasis added
Tuesday:
• All day: Light vehicle sales for April. The consensus is for light vehicle sales to increase to 17.2 million SAAR in April, from 16.6 million in  March (Seasonally Adjusted Annual Rate).

Black Knight on Mortgages "19 Percent of Active HELOCs Are Scheduled to Reset in 2017"

by Calculated Risk on 5/01/2017 02:27:00 PM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for March today. According to BKFS, 3.62% of mortgages were delinquent in March, down from 4.08% in March 2016. BKFS also reported that 0.88% of mortgages were in the foreclosure process, down from 1.25% a year ago.

This gives a total of 4.50% delinquent or in foreclosure.

Press Release: Black Knight’s March Mortgage Monitor: 19 Percent of Active HELOCs Are Scheduled to Reset in 2017

Today, the Data and Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of March 2017. This month, Black Knight took a closer look at home equity lines of credit (HELOCs), particularly on the share of HELOCs with draw periods – typically a 10-year term of interest-only payments before payments become fully amortizing – ending in 2017. Accounting for just under $100 billion in outstanding unpaid principal balances (UPB), these HELOCs represent the last of the pre-crisis lines of credit – those originated from between 2004 and 2007. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, as draw periods end and HELOCs reset with new payments, borrowers can face very different monthly obligations.

“In 2017, 19 percent of active HELOCs are facing reset,” said Graboske. “This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016. With the lines beginning to reset this year and early into 2018, we’re seeing the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014. After deceleration in early 2018, we will have a lull of several years in reset activity. On average, borrowers facing resets this year are looking at a ‘payment shock’ of about $250 per month over their current HELOC payments – more than doubling their current payments, in fact. Historically, those increases have impacted HELOC performance significantly; delinquency rates of 2006 vintage HELOCs – which reset last year – jumped by 74 percent. That was marginally lower than the 2004 and 2005 vintages, which saw delinquency rates rise by 90 and 88 percent, respectively. Payment shocks remain high for lines resetting in 2018 but then drop along with the overall volume of resets in 2019.

  “One thing that’s working in the 2007 vintage HELOCs’ favor has been the equity and interest rate environment of the last year. Rising home prices and low interest rates throughout 2016 have allowed borrowers to be much more proactive than in years past in terms of paying off or refinancing their lines to avoid increased monthly payments. For those still facing resets, however, equity continues to be a struggle. One-third of borrowers whose HELOCs will reset in 2017 have less than 20 percent equity in their home, making refinancing problematic. One in five have less than 10 percent, and one in 10 are actually underwater. Even that reflects improvement in home prices, though; last year 45 percent of borrowers facing reset had less than 20 percent equity and nearly 20 percent were underwater.”
emphasis added
BKFS Click on graph for larger image.

This graph from Black Knight shows the 90 day delinquency rate compared to the average of 2000 through 2005.

From Black Knight:
• Although the inventory of loans 90 or more days delinquent (but not yet in foreclosure) fell by 14 percent over Q1 2017 and is down 20 percent year-over-year, it remains roughly 25 percent above long term norms

• There are still over 250K more seriously delinquent (90+ days) and active foreclosure loans today than would be expected in a “healthy” market

• Approximately 40 percent of all delinquent mortgages are 30 days past due in today’s market; historically, that share has been closer to 55 percent, further reflecting the supply of lingering aged delinquencies
BKFSThis graph from Black Knight shows the foreclosure rate compared to the 2000-2005 average,

From Black Knight:
• Similarly, loans in the active foreclosure population have decreased by seven percent year-to-date and 29 percent year-over-year, but remain 45 percent above normal levels

• As 90+ day delinquent and active foreclosure inventories improve, overall delinquencies will continue to move toward a more normal distribution, albeit perhaps a lower than normal total volume of troubled loans
There is much more in the mortgage monitor.

Construction Spending decreased in March

by Calculated Risk on 5/01/2017 11:59:00 AM

Earlier today, the Census Bureau reported that overall construction spending decreased in March:

Construction spending during March 2017 was estimated at a seasonally adjusted annual rate of $1,218.3 billion, 0.2 percent below the revised February estimate of $1,220.7 billion. The March figure is 3.6 percent above the March 2016 estimate of $1,176.4 billion.
Private spending was unchanged, and public spending decreased in March:
Spending on private construction was at a seasonally adjusted annual rate of $940.2 billion, nearly the same as the revised February estimate of $940.1 billion. ...

In March, the estimated seasonally adjusted annual rate of public construction spending was $278.1 billion, 0.9 percent below the revised February estimate of $280.7 billion
emphasis added
Construction Spending Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been generally increasing, and is still 26% below the bubble peak.

Non-residential spending is now 5% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 15% below the peak in March 2009, and only 6% above the austerity low in February 2014.

Year-over-year Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 7%. Non-residential spending is up 6% year-over-year. Public spending is down 6% year-over-year.

Looking forward, all categories of construction spending should increase in 2017 (maybe not public spending).

This was below the consensus forecast of a 0.5% increase for March, however January and February were revised up sharply - a decent report.

ISM Manufacturing index decreased to 54.8 in April

by Calculated Risk on 5/01/2017 10:04:00 AM

The ISM manufacturing index indicated expansion in April. The PMI was at 54.8% in April, down from 57.2% in March. The employment index was at 52.0%, down from 58.9% last month, and the new orders index was at 54.8%, down from 64.5%.

From the Institute for Supply Management: April 2017 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 95th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: "The April PMI® registered 54.8 percent, a decrease of 2.4 percentage points from the March reading of 57.2 percent. The New Orders Index registered 57.5 percent, a decrease of 7 percentage points from the March reading of 64.5 percent. The Production Index registered 58.6 percent, 1 percentage point higher than the March reading of 57.6 percent. The Employment Index registered 52 percent, a decrease of 6.9 percentage points from the March reading of 58.9 percent. Inventories of raw materials registered 51 percent, an increase of 2 percentage points from the March reading of 49 percent. The Prices Index registered 68.5 percent in April, a decrease of 2 percentage points from the March reading of 70.5 percent, indicating higher raw materials prices for the 14th consecutive month, but at a slower rate of increase in April compared with March. Comments from the panel generally reflect stable to growing business conditions; with new orders, production, employment and inventories of raw materials all growing in April over March."
emphasis added
ISM PMIClick on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 56.5%, and suggests manufacturing expanded at a slower pace in April than in March.

Still a decent report.

Personal Income increased 0.2% in March, Spending increased less than 0.1%

by Calculated Risk on 5/01/2017 08:36:00 AM

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

Personal income increased $40.0 billion (0.2 percent) in March according to estimates released today by the Bureau of Economic Analysis. ... personal consumption expenditures (PCE) increased $5.7 billion (less than 0.1 percent).
...
Real PCE increased 0.3 percent. The PCE price index decreased 0.2 percent. Excluding food and energy, the PCE price index decreased 0.1 percent.
The March PCE price index increased 1.8 percent year-over-year and the February PCE price index, excluding food and energy, increased 1.6 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through March 2017 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was below expectations,  and the increase in PCE was close to expectations.