by Calculated Risk on 8/30/2017 08:33:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2017 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 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 2.6 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; increases in personal consumption expenditures (PCE) and in nonresidential fixed investment were larger than previously estimated. These increases were partly offset by a larger decrease in state and local government spending ...
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 2.8% to 3.3%. (solid PCE). Residential investment was revised up slightly from -6.8% to -6.5%. This was above the consensus forecast.

by Calculated Risk on 8/30/2017 08:19:00 AM

From ADP:

Private sector employment increased by 237,000 jobs from July to August according to the August ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“In August, the goods-producing sector saw the best performance in months with solid increases in both construction and manufacturing,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Additionally, the trade industry pulled ahead to lead job gains across all industries, adding the most jobs it has seen since the end of 2016. This could be an industry to watch as consumer spending and wage growth improves.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to power forward. Job creation is strong across nearly all industries, company sizes. Mounting labor shortages are set to get much worse. The initial BLS employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems.”

This was above the consensus forecast for 182,000 private sector jobs added in the ADP report. 

The BLS report for August will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in August.

by Calculated Risk on 8/30/2017 07:00:00 AM

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

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 25, 2017.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 4 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) decreased to its lowest level since November 2016, 4.11 percent, from 4.12 percent, with points increasing to 0.43 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.


The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 4% year-over-year.

by Calculated Risk on 8/29/2017 07:22:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Now Easily into "High 3's"

It's one thing for the highly competitive environment of "rate table" advertising (where lenders compete and you get confused) to be reporting mortgage rates  approaching the mid 3's. In fact, in that arena, rates have been in the 3% range for quite some time. Whether or not you'd qualify or even be interested in the specific scenario that is conducive to such rates is another story.

It's an entirely different thing for me to be telling you that rates are now easily into the high 3's, because I'm talking about the most prevalently-quoted conventional 30yr fixed rates for the average top-tier scenario across all lenders.  3.875% is now a given at almost any well-priced lender, provided you have a high credit score and a decent amount of equity.  3.75% certainly isn't out of the question for the best scenarios, and the aggressive lenders have no issues quoting 3.625% today for perfectly-aligned stars.

With all of the above having been said, please keep in mind that just a few "hits" to your scenario (slightly lower credit, lower downpayment, less aggressive lender) and you shouldn't be surprised to see a "4%" as the first number in your 30yr fixed rate quote instead of a "3%."
emphasis added

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 August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, up from 178,000 added in July.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2017 (Second estimate). The consensus is that real GDP increased 2.8% annualized in Q2, up from advance estimate of 2.6%.

by Calculated Risk on 8/29/2017 03:41:00 PM

My thoughts are with the people of south Texas.

There will be some economic impacts from Hurricane Harvey (housing, oil, etc).

On housing, my initial expectations is that new home sales and housing starts will decline in the September report. Houston and south Texas are a major portion of starts and new home sales, and it will take some time to recover. We will probably also see a decline in existing home sales. We can't look back at Hurricane Katrina for guidance on housing because Katrina happened just after the housing bubble peaked - so starts and sales were already declining.

We can look back at Katrina (and Rita) for the impact on unemployment claims.

The following graph shows the 4-week moving average of weekly claims since 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average.

Hurricane Katrina made landfall on Aug 29, 2005.  Unemployment claims moved higher over the next month, and stayed elevated for a couple of months.

Note that claims also spiked following 9/11 and after Hurricane Sandy in late October 2012.  The increase following Sandy was significant, but only lasted a few weeks (so the 4-week average didn't increase as much as for Katrina).

My expectation is the 4-week average of claims will increase from the current level of 238,000 to over 300,000 over the next month.

by Calculated Risk on 8/29/2017 11:12:00 AM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.8% year-over-year in June

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 3.2% above the previous bubble peak. However, in real terms, the National index (SA) is still about 13.3% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In June, the index was up 5.8% YoY.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller 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 $278,000 today adjusted for inflation (39%).  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, and the monthly Case-Shiller Composite 20 SA (through June) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to October 2005 levels.



Real House Prices

The second graph shows the same two 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 July 2004 levels, and the Composite 20 index is back to March 2004.

In real terms, house prices are back to early-to-mid 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 and Composite 20 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 November 2003 levels, and the Composite 20 index is back to August 2003 levels.

In real terms, prices are back to early-to-mid 2004 levels, and the price-to-rent ratio is back to 2003 - and the price-to-rent ratio maybe moving a little more sideways now.

by Calculated Risk on 8/29/2017 09:14:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for June ("June" is a 3 month average of April, May and June 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 Home Price Rises Again to All Time High

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.8% annual gain in June, up from 5.7% the previous month. The 10-City Composite posted a 4.9% annual increase, down from 5.0% the previous month. The 20-City Composite reported a 5.7% year-over-year gain, the same as the previous month.

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In June, Seattle led the way with a 13.4% year-over-year price increase, followed by Portland with 8.2%, and Dallas with a 7.7% increase. Nine cities reported greater price increases in the year ending June 2017 versus the year ending May 2017.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.9% in June. The 10-City and 20-City Composites both reported a 0.7% increase in June. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase. The 10-City Composite remained stagnant with no month-over-month increase. The 20-City Composite posted a 0.1% month-over-month increase. All 20 cities reported increases in June before seasonal adjustment; after seasonal adjustment, 14 cities saw prices rise.

“The trend of increasing home prices is continuing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Price increases are supported by a tight housing market. Both the number of homes for sale and the number of days a house is on the market have declined for four to five years. Currently the months-supply of existing homes for sale is low, at 4.2 months. In addition, housing starts remain below their pre-financial crisis peak as new home sales have not recovered as fast as existing home sales.”

“Rising prices are the principal factor driving affordability down. However, other drivers of affordability are more favorable: the national unemployment rate is down, and the number of jobs created continues to grow at a robust pace, rising to close to 200,000 per month. Wages and salaries are increasing, maintaining a growth rate a bit ahead of inflation. Mortgage rates, up slightly since the end of 2016, are under 4%. Given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely.”
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 6.7% from the peak, and up slightly in June (SA).

The Composite 20 index is off 3.9% from the peak, and up 0.1% (SA) in June.

The National index is 3.2% above the bubble peak (SA), and up 0.4% (SA) in June.  The National index is up 39.5% 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 4.9% compared to June 2016.  The Composite 20 SA is up 5.7% year-over-year.

The National index SA is up 5.8% year-over-year.

Note: According to the data, prices increased in 16 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

by Calculated Risk on 8/28/2017 06:41:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Still at 2017 Lows

Mortgage rates held steady today, as the news cycle was dominated by Hurricane Harvey.  That's not to say that natural disasters prevent movement in mortgage rates, but in today's case, there simply wasn't much else to talk about.  An auction of 5yr Treasury notes helped bond markets improve slightly in the afternoon.  When bonds improve, rates tend to move lower, but only a few lenders adjusted mortgage rates lower in the afternoon.

The lack of movement continues to be just fine for the average borrower, considering rates are at their lowest levels since November 2016.  The most prevalent conventional 30yr fixed rate for to tier scenarios remains 3.875%.

Tuesday:
• At 9:00 AM ET, 9:00 AM ET: S&P/Case-Shiller House Price Index for June. The consensus is for a 5.7% year-over-year increase in the Comp 20 index for June.

by Calculated Risk on 8/28/2017 03:05:00 PM

Note: Hotel occupancy rates increased noticeably following Hurricanes Katrina and Rita in 2005. I expect the overall occupancy rate will also increase following Hurricane Harvey - and stay elevated for several months. This might even push 2017 into record territory.

From HotelNewsNow.com: STR: US hotel results for week ending 19 August

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 13-19 August 2017, according to data from STR.

In comparison with the week of 14-20 August 2016, the industry recorded the following:

• Occupancy: +1.4% to 72.3%
• Average daily rate (ADR): +2.1% to US$127.12
• Revenue per available room (RevPAR): +3.5% to US$91.85
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

The red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is tracking close to last year, and behind the record year in 2015.

Seasonally, the occupancy rate has peaked and will decline into the Fall.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 8/28/2017 10:37:00 AM

From the Dallas Fed: Texas Manufacturing Activity Expands Again

Texas factory activity continued to increase in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, edged down to 20.3, indicating output grew but at a slightly slower pace than in July.

Other measures of current manufacturing activity also indicated continued growth. The new orders and the growth rate of orders indexes ticked down but stayed solidly positive, coming in at 14.3 and 11.7, respectively. The capacity utilization index fell six points to 12.2, while the shipments index increased seven points to 18.1.

Perceptions of broader business conditions remained positive in August. The general business activity index was largely unchanged at a robust 17.0. The company outlook index posted its 12th consecutive positive reading but slipped 10 points to 16.3 after surging to a multiyear high last month.

Labor market measures suggested continued employment gains and longer workweeks this month. The employment index came in at 9.9, slightly below the July reading, extending this year’s string of positive readings. Eighteen percent of firms noted net hiring, compared with eight percent noting net layoffs. The hours worked index rose five points to 14.5.
emphasis added

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

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

Based on these regional surveys, it seems likely the ISM manufacturing index will increase in August compared to July (to be released Friday, Sept 1st). The consensus is for the ISM index to increase to 56.6 in August from 56.3 in July.