by Calculated Risk on 3/23/2018 11:34:00 AM

New home sales for January were reported at 618,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, however the three previous months were revised up.

I'd like to see data for a few more months before blaming higher interest rates, or a negative impact from the new tax law, as the cause of sluggish new home sales.

Earlier: New Home Sales at 618,000 Annual Rate in February.

Click on graph for larger image.

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales are up 2% through February compared to the same period in 2017.  Disappointing growth, but no worries - yet!

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 February 2018. 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.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

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.

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 3/23/2018 10:12:00 AM

The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 618 thousand.

The previous three months were revised up.

"Sales of new single-family houses in February 2018 were at a seasonally adjusted annual rate of 618,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent below the revised January rate of 622,000, but is 0.5 percent above the February 2017 estimate of 615,000. "
emphasis added

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.

Even with the increase in sales over the last several years, new home sales are still somewhat low historically.

The second graph shows New Home Months of Supply.

The months of supply increased in February to 5.9 months from 5.8 months in January.

The all time record was 12.1 months of supply in January 2009.

This is at the top end of the normal range (less than 6 months supply is normal).

"The seasonally-adjusted estimate of new houses for sale at the end of February was 305,000. This represents a supply of 5.9 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In February 2018 (red column), 51 thousand new homes were sold (NSA). Last year, 51 thousand homes were sold in February.

The all time high for February was 109 thousand in 2005, and the all time low for February was 22 thousand in 2011.

This was below expectations of 626,000 sales SAAR, however the previous months were revised up. I'll have more later today.

by Calculated Risk on 3/22/2018 09:59:00 PM

Friday:
• At 8:30 AM ET, Durable Goods Orders for February from the Census Bureau. The consensus is for a 0.1.72% increase in durable goods orders.

• At 10:00 AM, New Home Sales for February from the Census Bureau. The consensus is for 626 thousand SAAR, up from 593 thousand in January.

• Also at 10:00 AM, State Employment and Unemployment (Monthly) for February 2018

by Calculated Risk on 3/22/2018 04:28:00 PM

By request, here is an update to the chart showing market performance under Presidents Trump and Obama.

Note: I don't think the stock market is a great measure of policy performance, but some people do - and I'm having a little fun with them.

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

Update: And from White House chief economic advisor Gary Cohn on December 20, 2017:

"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."

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 16.4% under Mr. Trump - compared to up 44.8% under Mr. Obama for the same number of market days.

by Calculated Risk on 3/22/2018 01:45:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento, and also total existing home inventory as reported by the NAR (all through February 2018).

Click on graph for larger image.

This shows the year-over-year change in inventory for Phoenix, Sacramento, and Las Vegas.  The black line if the year-over-year change in inventory as reported by the NAR.

Note that inventory is Sacramento was up 17% year-over-year in February (still very low), and has increased year-over-year for five consecutive months.  However inventory is down Nationally, and down in Phoenix and Las Vegas.

I'll try to add a few other markets.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.

by Calculated Risk on 3/22/2018 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued at a Solid Pace

The Federal Reserve Bank of Kansas City released the March Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued at a solid pace, and optimism remained high for future activity.

“Factory activity continued to grow steadily in March,” said Wilkerson. “Firms continued to report high input and selling prices and many are concerned about higher steel and aluminum tariffs.”
...
The month-over-month composite index was 17 in March, equal to 17 in February and higher than 16 in January. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Factory activity grew modestly at durable goods plants, particularly for machinery and aircraft, while production of nondurable goods moderated slightly. Month-over-month indexes were mixed. The shipments and new orders indexes decreased moderately, while the production, order backlog, and new orders for exports indexes where basically unchanged. In contrast, the employment index edged up from 23 to 26 and the supplier delivery time index jumped from 16 to 30, both at their highest levels in survey history. The raw materials inventory index increased from 8 to 11, and the finished goods inventory index also rose modestly.
emphasis added

So far all of the regional Fed surveys have been solid in March.

by Calculated Risk on 3/22/2018 08:34:00 AM

The DOL reported:

In the week ending March 17, the advance figure for seasonally adjusted initial claims was 229,000, an increase of 3,000 from the previous week's unrevised level of 226,000. The 4-week moving average was 223,750, an increase of 2,250 from the previous week's unrevised average of 221,500.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
emphasis added

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 increased to 223,750.

This was slightly higher than the consensus forecast. The low level of claims suggest relatively few layoffs.

by Calculated Risk on 3/21/2018 07:29:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher, Then Lower After Fed Announcement

Mortgage rates rose to new 4-year highs this morning as lenders took a defensive stance ahead of the afternoon's Fed Announcement. The caution proved to be warranted, at least at first, as bond markets reacted negatively to the first phase of Fed-related information. ... When new Fed Chair Jerome Powell began his press conference half an hour later, bond markets (which underlie rates) began to improve. Just over an hour after the initial drama, bonds moved into moderately positive territory on the day and most lenders offered positively-revised rate sheets (i.e. stronger bond markets allowed mortgage lenders to drop their rates). After those reprices, the average lender returned in line with yesterday's rates (which are still pretty close to 4-year highs, but a welcome sight after this morning's offerings). [30YR FIXED - 4.5-4.625%]
emphasis added

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 225 thousand initial claims, up from 226 thousand the previous week.

• At 9:00 AM, FHFA House Price Index for January 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for March.

by Calculated Risk on 3/21/2018 03:46:00 PM

Earlier: NAR: "Existing-Home Sales Rebound 3.0 Percent in February"

A few key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus (although only slightly closer this month). See: Lawler: Early Read on Existing Home Sales in January.

2) Inventory is still very low and falling year-over-year (down 8.1% year-over-year in February). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.    This was the 33rd consecutive month with a year-over-year decline in inventory.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in February (319,000, red column) were above sales in February 2017 (315,000, NSA).

Sales NSA are always low in January and February, and we will have to wait until March - at the earliest - to draw any conclusions about the impact of higher interest rates and the new tax law on home sales.

by Calculated Risk on 3/21/2018 02:01:00 PM

Powell press conference video here.

Here are the updated projections. Forecasting more rate hikes in 2019.

FOMC Statement:

Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely. In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams. emphasis added