by Calculated Risk on 9/30/2018 04:48:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. See the links below for the official releases.

Monday:
• At 10:00 AM: ISM Manufacturing Index for September. The PMI was at 61.3% in August, the employment index was at 58.5%, and the new orders index was at 65.1%.

• At 10:00 AM: Construction Spending for August.

by Calculated Risk on 9/29/2018 08:11:00 AM

The key report this week is the September employment report on Friday.

Other key indicators include the September ISM manufacturing and non-manufacturing indexes, September auto sales, and the August trade deficit.

----- Monday, Oct 1st -----
10:00 AM: ISM Manufacturing Index for September.

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

The PMI was at 61.3% in August, the employment index was at 58.5%, and the new orders index was at 65.1%.

10:00 AM: Construction Spending for August.

----- Tuesday, Oct 2nd -----
All day: Light vehicle sales for September.

The BEA estimated sales of 16.596 million SAAR in August 2018 (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the current sales rate.

Early: Reis Q3 2018 Mall Survey of rents and vacancy rates.

8:00 AM: Corelogic House Price index for August.

----- Wednesday, Oct 3rd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for September. This report is for private payrolls only (no government).

Early: Reis Q3 2018 Office Survey of rents and vacancy rates.

10:00 AM: the ISM non-Manufacturing Index for September.

----- Thursday, Oct 4th -----
8:30 AM: The initial weekly unemployment claims report will be released.

----- Friday, Oct 5th -----
8:30 AM: Employment Report for September.

There were 201,000 jobs added in August, and the unemployment rate was unchanged at 3.9%.

This graph shows the year-over-year change in total non-farm employment since 1968.

In August the year-over-year change was 2.33 million jobs.

A key will be the change in wages.

8:30 AM: Trade Balance report for August from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through the most recent report. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The U.S. trade deficit was at $50.1 billion in July.

3:00 PM: Consumer Credit from the Federal Reserve.

by Calculated Risk on 9/28/2018 01:00:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th.
In December 2007, most analysts were still dramatically underestimating the probabe losses for lenders and financial institutions.

Here is an article from the WSJ quoting a crazy blogger: How High Will Subprime Losses Go?

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Many people thought I was crazy. But losses for lenders and financial institutions ended up over $1 Trillion.

And if you look at the post the WSJ referenced, the first paragraph starts: "Within the next couple of years, probably somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes are worth."

I was a grizzly bear!

by Calculated Risk on 9/28/2018 10:07:00 AM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. Another post on Tanta!

Every finance and economics blogger owes Tanta a debt of gratitude. Before Tanta wrote the following essay, newspapers would "borrow" ideas and subjects from bloggers, and never mention the source. In March 2007 - with a powerful essay - she changed the way the main street media treated bloggers.

 In the week following publication of this piece, Tanta or myself were mentioned in just about every major newspaper in the US!

Sadly the media has trouble distinguishing between informed commentary and nonsense (like Zero Right) ... but at least bloggers now get mentioned.

From March 2007: Media Inquiries Policy

Calculated Risk is a hobby blog, created and maintained by a retired executive, with occasional assistance from a former bank officer and mortgage lending specialist who is currently on extended medical leave. Both of these people get endless questions, answers, hat tips, links, analysis, and overall inspiration from a very diverse group of commenters, regulars and occasional de-lurkers, all of whom are beloved except some of them.

CR regularly gets emails and comments from paid reporters who wish to know if CR or Tanta would like to be interviewed, or would simply like to answer one or several questions that the reporter has about economic or housing or mortgage issues. Because, so far, the answer has always been something on the order of “no,” we would like to explain to you why this is the case.
...
Dear reporters, we quote your stuff periodically, giving credit both to the reporter and the publication, under fair use terms. We have no objection to your returning the favor. If you have an editor who will not allow that, and you think that the problem can be solved by getting one of us to drop our online personas, give you our real names, and say the same thing to you over the phone, so that you can get your editor to accept it as something other than just blogging, which everybody knows is untrustworthy ranting by anonymous nuts, you are making a faulty assumption about the relationship among us, our birthdays, and yesterday. Neither CR nor Tanta wishes to play into a set of assumptions that render what we say on the blog as unworthy of coverage by the Big Media, but what we might say on the phone to Intrepid Reporter as good dirt and straight skinny.

by Calculated Risk on 9/27/2018 06:43:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. See the links below for the official releases.

Friday:
• At 8:30 AM ET, Personal Income and Outlays for August from the BEA. The consensus is for a 0.4% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:45 AM, Chicago Purchasing Managers Index for September. The consensus is for a reading of 62.0, down from 63.6 in August.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for September). The consensus is for a reading of 100.8.

by Calculated Risk on 9/27/2018 01:01:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. There will be a few posts on Tanta today.

In December 2006, my friend Doris "Tanta" Dungey started writing for Calculated Risk.

From December 2006, until she passed away from ovarian cancer on Nov 30, 2008, Tanta was my co-blogger. Tanta worked as a mortgage banker for 20 years, and we started chatting in early 2005 about the housing bubble and the changes in lending practices. In 2006, Tanta was diagnosed with late stage cancer, and she took an extended medical leave while undergoing treatment. While on medical leave she wrote for this blog, and her writings received widespread attention and acclaim.

If you want to understand the mortgage industry, read Tanta's posts (here is The Compleat UberNerd and a Compendium of Tanta's Posts).

As an example, here is a brief excerpt from Foreclosure Sales and REO For UberNerds

The following is not an exhaustive discussion of all of the issues involved in foreclosures and REO. It’s a start at unpacking some of the concepts and definitions. We have been seeing, and are going to continue to see, a lot of information presented on foreclosure sales, REO sales, and their impacts on existing home transaction volumes and prices in various market areas. As always with “UberNerd” posts, this is long and excruciating. Proceed with typical motivation as you may consider your own best interest in an open market in blog postings.

And an excerpts from Mortgage Servicing for UberNerds

StillLearning asked in the comments about mortgage servicing, and since y’all are nerds, not dummies, here’s my highly-selective occasionally-oversimplified summary for you that skips the boring parts like how your check gets out of the “lockbox” and that stuff. We can discuss extra-credit issues like “excess servicing” and “subservicing” and “SFAS 144 meets MSR” and “negative convexity” and other kinds of inside baseball in the comments. There is a lot that can be said about loan servicing, but let’s start with the basics:

Servicers have two major types of servicing portfolio: loans they service for themselves and loans they service for other investors. In accounting terms, the “compensation” is the same, meaning that even if you are the noteholder, you pay yourself to service the loans in the same way that an outside investor would pay you, and it shows on the books that way. The differences in compensation stem from the basic fact that one is generally more motivated to do a good job servicing (particularly collecting and efficiently liquidating REO) for one’s own investment than for someone else’s.

Also see In Memoriam: Doris "Tanta" Dungey for photos, links to obituaries in the NY Times, Washington Post and much more.

by Calculated Risk on 9/27/2018 10:02:00 AM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. There will be a few posts on Tanta today.

In December 2006, my friend Doris "Tanta" Dungey started writing for Calculated Risk.

When some people say that here are few women bloggers in finance and economics, I remind them that Tanta was the best of all of us!

From December 2006, until she passed away from ovarian cancer on Nov 30, 2008, Tanta was my co-blogger. Tanta worked as a mortgage banker for 20 years, and we started chatting in early 2005 about the housing bubble and the changes in lending practices. In 2006, Tanta was diagnosed with late stage cancer, and she took an extended medical leave while undergoing treatment. While on medical leave she wrote for this blog, and her writings received widespread attention and acclaim.

Here are excerpts from her first two posts:

From December 2006: Let Slip the Dogs of Hell

I still haven’t gotten over the fact that there’s a “capital management” group out there having named itself “Cerberus”. Those of you who were not asleep in Miss Buttkicker’s Intro to Western Civ will recognize Cerberus; the rest of you may have picked up the mythological fix from its reprise as “Fluffy” in the first Harry Potter novel. Wherever you get your culture, Cerberus is the three-headed dog who guards the gates of Hell. It takes three heads to do that, of course, because it’s never clear, in theology or finance, whether the idea is to keep the righteous from falling into the pit or the demons from escaping out of it (the third head is busy meeting with the regulators). Cerberus is relevant not just because it supplies me with today’s metaphor, but because it was the Biggest Dog of three (including Citigroup and Aozora, a Japanese bank) who in April bought a 51% stake in GMAC’s mega-mortgage operation, GM having, of course, once been renowned as one of the Big Three Automakers until it became one of the Big Three Financing Outfits With A Sideline In Cars. I tried to find a link for you to Aozora Bank’s announcement of the purchase, but the only press release I could find for that day involved the loss of customer data. They must have been so busy letting GMAC into the underworld that the dog head keeping the deposit tickets from getting out got distracted.
...
Now, I’m just a Little Mortgage Weenie, not a Big Finance Dog, but bear with me while I ask some stupid questions. Like: how do the Big Dogs maintain “diverse and flexible production channels” (i.e., little mortgage banker Puppies to sell you correspondent business and little broker Puppies to sell you wholesale business) when “market share currently held by top-tier players” expands to two-thirds (meaning less diverse off-load strategies for the Little Puppies in the “production channels,” putting them at further pipeline/counterparty risk unless they become Bigger Puppies, which makes them competitors instead of “channels,”), while at the same time watching some of the Little Puppies (in whom the Big Dogs have a major equity stake) crawl under the porch to die? I know Citi doesn’t seem to have noticed that the “increased regulatory scrutiny” is not just of “products” but of “wholesale operational/management controls,” but I did.

And from December 2006: On Hybrids, Teasers, and Other Mortgage Guidance Problems

First of all, a “hybrid ARM” is called a “hybrid” because it is, basically, a cross between a fixed rate and adjustable rate mortgage. Before the early 90s, an “ARM” basically meant a one-year ARM. The initial interest rate was set for one year, and the rate adjusted every year. The only real variations on this theme involved shortening the adjustment frequency: you could get an ARM that adjusted every six months instead of one year.

Around the early 90s, the “hybrid ARM” was introduced. It had an initial period in which the rate was “fixed” that didn’t match the subsequent adjustment frequency: this is the classic 3/1, 5/1, 7/1, and even 10/1 ARM. The whole idea of the hybrid ARM was to provide a kind of medium-range risk/reward tradeoff for borrowers and lenders.

CR Note: If you want to understand the mortgage industry, read Tanta's posts (here is The Compleat UberNerd and a Compendium of Tanta's Posts).

Also see In Memoriam: Doris "Tanta" Dungey for photos, links to obituaries in the NY Times, Washington Post and much more.

by Calculated Risk on 9/26/2018 04:36:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th. See the links below for the official releases.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 210 thousand initial claims, up from 201 thousand the previous week. Note: Look for the impact of Hurricane Florence.

• At 8:30 AM, Durable Goods Orders for August from the Census Bureau. The consensus is for a 2.0% increase in durable goods orders.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2018 (Third estimate) from the BEA. The consensus is that real GDP increased 4.3% annualized in Q2, up from the second estimate of 4.2%.

• Early, Reis Q3 2018 Apartment Survey of rents and vacancy rates.

• At 10:00 AM, Pending Home Sales Index for August from the NAR. The consensus is 0.2% increase in the index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for September. This is the last of the regional surveys for September.

by Calculated Risk on 9/26/2018 02:00:00 PM

CR Note: Gone hiking! I will return on Thursday, Oct 4th.
The FOMC Statement is here. (all FOMC statements are here)

You can watch the Powell press conference video here.

The updated projections are here.

For excellent commentary, please see Tim Duy's Fed Watch.

by Calculated Risk on 9/26/2018 11:59:00 AM

New home sales for August were reported at 629,000 on a seasonally adjusted annual rate basis (SAAR). This was close to the consensus forecast, however the three previous months were revised down significantly.

Sales in August were up 12.7% year-over-year compared to August 2017.   This was strong YoY growth, however this was an easy comparison since new home sales were soft in mid-year 2017.

On Inventory: Months of inventory is now close to the top of the normal range, however the number of units completed and under construction is still somewhat low.   Inventory will be something to watch.

Earlier: New Home Sales increase to 629,000 Annual Rate in August.

Click on graph for larger image.

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

Note that new home sales have been up year-over-year every month this year (so far).

Sales are up 6.9% through August compared to the same period in 2017.

This is on track to be close to my forecast for 2018 of 650 thousand new home sales for the year; an increase of about 6% over 2017.   There are downside risks to that forecast, such as higher mortgage rates, higher costs (labor and material), and possible policy errors.   And new home sales had a strong last few months in 2017, so the comparisons will be more difficult.

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 August 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.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next few years.

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.