by Calculated Risk on 9/22/2017 02:56:00 PM

The automakers will report September vehicle sales on Tuesday, October 3rd.

Note: There were 26 selling days in September 2017, there were 25 in September 2016.

From WardsAuto: Forecast: SAAR Expected to Surpass 17 Million in September

A WardsAuto forecast calls for U.S. light-vehicle sales to reach a 17.5 million-unit seasonally adjusted annual rate in September, following August’s 16.0 million SAAR and ending a 6-month streak of sub-17 million figures. In same-month 2016, the SAAR reached 17.6 million.
...
Preliminary assumptions pointed to October, rather than September, as the turning point for the market, as consumers replace vehicles lost due to natural disasters and automakers push sales to clear out excess model-year ’17 stock. However, the winds have already begun to turn, and September sales will be significantly higher than originally expected.
emphasis added

Sales have been below 17 million SAAR for six consecutive months.

by Calculated Risk on 9/22/2017 10:23:00 AM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data (released yesterday) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

For Q2 2017, the Net Equity Extraction was a positive $12 billion, or a positive 0.3% of Disposable Personal Income (DPI) .

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $64 billion in Q2.

The Flow of Funds report also showed that Mortgage debt has declined by $1.23 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.

With a slower rate of debt cancellation, MEW will likely be mostly positive going forward.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 9/22/2017 08:11:00 AM

Note: This is a repeat of a June post with updated statistics and graph.

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 10.1% under Mr. Trump compared to up 32.2% under Mr. Obama for the same number of market days.

by Calculated Risk on 9/21/2017 03:00:00 PM

Earlier from the Philly Fed: September 2017 Manufacturing Business Outlook Survey

Manufacturing firms reported an improvement in regional manufacturing conditions in September. The survey’s current indicators for general activity, new orders, and shipments increased this month and suggest a broadening of growth. Price pressures also picked up, according to the reporting firms. The survey’s future indicators suggest that manufacturers have generally grown more optimistic over the past three months.
...
The indexes for general activity [increased to 23.8 from 18.9 in August], new orders, and shipments increased this month, and employment remained positive.
emphasis added

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 September), 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 August (right axis).

This suggests the ISM manufacturing index will show solid expansion in September.

by Calculated Risk on 9/21/2017 01:10:00 PM

The Federal Reserve released the Q2 2017 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q2 2017 compared to Q1 2017:

The net worth of households and nonprofits rose to $96.2 trillion during the second quarter of 2017. The value of directly and indirectly held corporate equities increased $1.1 trillion and the value of real estate increased $0.6 trillion.

The Fed estimated that the value of household real estate increased to $23.8 trillion in Q2. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2017, household percent equity (of household real estate) was at 58.4% - up from Q2, and the highest since Q1 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 58.4% equity - and about 2.8 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $64 billion in Q2.

Mortgage debt has declined by $1.23 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q2, and  is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

by Calculated Risk on 9/21/2017 09:58:00 AM

From Black Knight: Black Knight’s First Look at August 2017 Mortgage Data: Hurricane Harvey Impact Already Being Felt in the Mortgage Market as Delinquencies Jump 16 Percent in Affected Areas

• Nationally, delinquencies remained relatively flat from July, while delinquencies in Hurricane Harvey- impacted areas rose by 16 percent month over month

• Despite most payments being due August 1, and the storm making landfall near the end of the month, its effect on mortgage delinquencies is already being felt

• Over 6,700 new 30-day delinquencies can be attributed to Harvey, while an additional 1,000 borrowers who were already 30-days past due missed an additional mortgage payment in August as a result of the storm

• Based on observations from previous hurricanes, the heaviest impact on mortgage delinquency rates will come in September

According to Black Knight's First Look report for August, the percent of loans delinquent increased 0.7% in August compared to July, and declined 7.3% year-over-year.

The percent of loans in the foreclosure process declined 3.3% in August and were down 27.2% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.93% in August, up from 3.90% in July.

The percent of loans in the foreclosure process declined in August to 0.76%.

The number of delinquent properties, but not in foreclosure, is down 148,000 properties year-over-year, and the number of properties in the foreclosure process is down 142,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Aug 2017	July 2017	Aug 2016	Aug 2015
Delinquent	3.93%	3.90%	4.24%	4.87%
In Foreclosure	0.76%	0.78%	1.04%	1.48%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	2,003,000	1,986,000	2,151,000	2,413,000
Number of properties in foreclosure pre-sale inventory:	385,000	398,000	527,000	748,000
Total Properties	2,388,000	2,384,000	2,678,000	3,161,000

by Calculated Risk on 9/21/2017 08:46:00 AM

From CoreLogic: CoreLogic Reports 2.8 Million Residential Properties with a Mortgage Still in Negative Equity

CoreLogic® ... today released its Q2 2017 home equity analysis which shows U.S. homeowners with mortgages (roughly 63 percent of all homeowners) have seen their equity increase by a total of 10.6 percent year over year, representing a gain of $766 billion since Q2 2016.

Additionally, homeowners gained an average of $12,987 in equity between Q2 2016 and Q2 2017. Western states led the equity increase with Washington homeowners gaining an average of approximately $40,000 in home equity and California homeowners gaining an average of approximately $30,000 in home equity. Home price increases in these states drove the equity gains.

From Q1 2017 to Q2 2017, the total number of mortgaged residential properties with negative equity decreased 10 percent to 2.8 million homes, or 5.4 percent of all mortgaged properties. Year over year, negative equity decreased 21.9 percent from 3.6 million homes, or 7.1 percent of all mortgaged properties, from Q2 2016 to Q2 2017.

“Over the last 12 months, approximately 750,000 borrowers achieved positive equity,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”
emphasis added

Click on graph for larger image.

This graph shows the distribution of home equity in Q2 2017 compared to Q1 2017.

For reference, about five years ago, in Q3 2012, almost 10% of residential properties had 25% or more negative equity.

A year ago, in Q2 2016, there were 3.6 million properties with negative equity - now there are 2.8 million.  A significant change.

by Calculated Risk on 9/21/2017 08:34:00 AM

The DOL reported:

In the week ending September 16, the advance figure for seasonally adjusted initial claims was 259,000, a decrease of 23,000 from the previous week's revised level. The previous week's level was revised down by 2,000 from 284,000 to 282,000. The 4-week moving average was 268,750, an increase of 6,000 from the previous week's revised average. This is the highest level for this average since June 4, 2016 when it was 269,500. The previous week's average was revised down by 500 from 263,250 to 262,750.

Hurricanes Harvey and Irma impacted this week's claims.
emphasis added

The previous week was revised down.

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 increased to 268,750.

This was below the consensus forecast.

The report includes the reference period (includes the 12th of the month) for the September employment report - and suggests there was some impact of the hurricanes on employment in September.

by Calculated Risk on 9/20/2017 08:32:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Highest in More Than a Month After Fed

Mortgage rates rose today following the announcement and--more importantly--the Fed's updated economic projections. ... Investors weren't sure how the past few months of economic data and events would affect the rate hike outlook.  As it turned out, the Fed is more optimistic than investors anticipated.  That means they're more willing stick with the previous rate hike outlook for 2017 and 2018, and those rate hike expectations have a direct bearing on today's interest rates.

Conventional 30yr fixed rates didn't spike in any brutal sort of way, but given that the past 2 weeks have already seen a somewhat abrupt increase in rates, today still managed to be unpleasant.  4.0% is now the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios.  It had shared the stage with 3.875% roughly equally until today.  That leaves today's rates at the highest levels in nearly 2 months.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 303 thousand initial claims, up from 284 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for September. The consensus is for a reading of 18.0, down from 18.9.

• At 9:00 AM, FHFA House Price Index for June 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 12:00 PM, Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 9/20/2017 02:10:00 PM

Statement here. "In October, the Committee will initiate the balance sheet normalization program".

Yellen press conference video here.

On the projections, projections for GDP in 2017 were increased.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2017	2018	2019	2020
Sept 2017	2.2 to 2.5	2.0 to 2.3	1.7 to 2.1	1.6 to 2.0
June 2017	2.1 to 2.2	1.8 to 2.2	1.8 to 2.0	---
Mar 2017	2.0 to 2.2	1.8 to 2.3	1.8 to 2.0	---

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.4% in August, so unemployment rate projections were unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2017	2018	2019	2020
Sept 2017	4.2 to 4.3	4.0 to 4.2	3.9 to 4.4	4.0 to 4.5
June 2017	4.2 to 4.3	4.0 to 4.3	4.1 to 4.4	---
Mar 2017	4.5 to 4.6	4.3 to 4.6	4.3 to 4.7	---

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up 1.4% from July 2016. Inflation was revised down for 2017.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2017	2018	2019	2020
Sept 2017	1.5 to 1.6	1.8 to 2.0	2.0	2.0 to 2.1
June 2017	1.6 to 1.7	1.8 to 2.0	2.0 to 2.1	---
Mar 2017	1.8 to 2.0	1.9 to 2.0	2.0 to 2.1	---

PCE core inflation was up 1.4% in July year-over-year.  Core PCE inflation was revised down for 2017.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2017	2018	2019	2020
Sept 2017	1.5 to 1.6	1.8 to 2.0	2.0	2.0 to 2.1
June 2017	1.6 to 1.7	1.8 to 2.0	2.0 to 2.1	---
Mar 2017	1.8 to 1.9	1.9 to 2.0	2.0 to 2.1	---