by Calculated Risk on 1/30/2019 07:00:00 AM

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

Mortgage applications decreased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 25, 2019. This week’s results include an adjustment for the Martin Luther King Jr. Day holiday.

... The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 7 percent lower than the same week one year ago.
...
“Mortgage applications for purchase and refinances were lower over the past week, as rates nudged higher,” said Joel Kan, MBA’s Associate Vice President of Industry Surveys and Forecasts. “After two weeks of decreases, the purchase index still remained roughly 6 percent above its long-run average, which is good news with the spring buying and selling season almost underway. Despite ongoing supply and affordability constraints, the healthy job market and underlying demographic fundamentals both point to gradual purchase growth in the coming months.”

Added Kan, “Refinance activity had seen a small resurgence in the past few weeks, but there still remains only a small share of borrowers left to gain from rates at the current levels.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.76 percent from 4.75 percent, with points increasing to 0.47 from 0.44 (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.

Rates would have to fall further for a significant increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 7% year-over-year (this was a holiday week).

by Calculated Risk on 1/29/2019 07:00:00 PM

Note: The BEA and Census will have a new release schedule soon (getting back on track following the government shutdown).

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 January. This report is for private payrolls only (no government). The consensus is for 167,000 payroll jobs added in January, down from 271,000 added in December.

• At 8:30 AM, POSTPONED Gross Domestic Product, 4th quarter 2018 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q4, down from 3.4% in Q3.

• At 10:00 AM, Pending Home Sales Index for December. The consensus is for a 0.1% increase in the index.

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

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 1/29/2019 03:51:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.2% year-over-year in November

It has been over eleven years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 11.7% above the previous bubble peak. However, in real terms, the National index (SA) is still about 8.6% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.0% below the bubble peak.

The year-over-year increase in prices has slowed to 5.2% nationally, and will probably slow more as inventory picks up.

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 $286,000 today adjusted for inflation (43%).  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 October) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).



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 January 2005 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 2004/2005 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 2000 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2004 levels, and the Composite 20 index is back to November 2003 levels.

In real terms, prices are back to late 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004.

by Calculated Risk on 1/29/2019 11:18:00 AM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through November 2018).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

by Calculated Risk on 1/29/2019 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November ("October" is a 3 month average of September, October and November 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: Southwest Region Leads in Annual Gains According to the S&P CoreLogic Case-Shiller Index

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.2% annual gain in November, down from 5.3% in the previous month. The 10City Composite annual increase came in at 4.3%, down from 4.7% in the previous month. The 20-City Composite posted a 4.7% year-over-year gain, down from 5.0% in the previous month.

Las Vegas, Phoenix and Seattle reported the highest year-over-year gains among the 20 cities. In November, Las Vegas led the way with a 12.0% year-over-year price increase, followed by Phoenix with an 8.1% increase and Seattle with a 6.3% increase. Seven of the 20 cities reported greater price increases in the year ending November 2018 versus the year ending October 2018.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.1% in November. The 10-City and 20-City Composites both reported a 0.1% decrease for the month. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in November. The 10-City Composite and the 20-City Composite both posted 0.3% month-over-month increases. In November, eight of 20 cities reported increases before seasonal adjustment, while 15 of 20 cities reported increases after seasonal adjustment.

“Home prices are still rising, but more slowly than in recent months,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The pace of price increases are being dampened by declining sales of existing homes and weaker affordability. Sales peaked in November 2017 and drifted down through 2018. Affordability reflects higher prices and increased mortgage rates through much of last year. Following a shift in Fed policy in December, mortgage rates backed off to about 4.45% from 4.95%.

“Housing market conditions are mixed while analysts’ comments express concerns that housing is weakening and could affect the broader economy. Current low inventories of homes for sale – about a four-month supply – are supporting home prices. New home construction trends, like sales of existing homes, peaked in late 2017 and are flat to down since then. Stable 2% inflation, continued employment growth, and rising wages are all favorable. Measures of consumer debt and debt service do not suggest any immediate problems.”
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 up slightly from the bubble peak, and up 0.3% in November (SA).

The Composite 20 index is 3.7% above the bubble peak, and up 0.3% (SA) in November.

The National index is 11.7% above the bubble peak (SA), and up 0.4% (SA) in November.  The National index is up 51.1% 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 4.3% compared to November 2017.  The Composite 20 SA is up 4.7% year-over-year.

The National index SA is up 5.2% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

by Calculated Risk on 1/28/2019 06:52:00 PM

Note: The BEA has announced that the Q4 GDP report, along with the Personal Income and Outlays and Trade reports, will not be released this week as scheduled. A new schedule will be published soon.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged at Start of Hectic Week

Mortgage rates didn't move at all today, on average, but that's likely to change throughout the course of the week--possibly several times. Interest rates are driven by bond market trading which, in turn, takes its cues from all manner of inputs. Two of the biggest inputs are economic data and the Federal Reserve (aka "The Fed"). There is plenty to consider on both accounts in the coming days.

The Fed will release one of its periodic policy announcements on Wednesday. No one expects them to raise rates at this meeting, but there are broad-based expectations for the verbiage of the Fed's statement to soften (i.e. to become more friendly toward rates and financial markets in general). Traders are already betting on some softening (which is helping rates stay lower than they otherwise might be over the past few trading days), but there's still plenty of room left for surprises. [30YR FIXED - 4.5%]
emphasis added

Tuesday:
• At 9:00 AM ET: S&P/Case-Shiller House Price Index for November. The consensus is for a 4.9% year-over-year increase in the Comp 20 index for November.

• At 10:00 AM: POSTPONED the Q4 2018 Housing Vacancies and Homeownership from the Census Bureau.

by Calculated Risk on 1/28/2019 12:59:00 PM

Here is Merrill Lynch economists forecast for the January non-farm payroll report:

We look for nonfarm payrolls to grow by 185k in January following a strong gain of 312k in December. We expect private payrolls, which excludes government workers to increase by 185k, implying no change in government payrolls in January.

Our private payrolls tracker based on internal BAC data is looking for somewhat stronger employment growth of 232k but we see a few reasons to fade the strength this month.
...
We also see some downside risk to private payroll employment growth due to the partial federal government shutdown. According to news reports, some government contractors have furloughed or laid off private workers while others employers have paused hiring activity during the shutdown. These disruptions may not be fully captured by our internal data as our data present a degree of selection bias, including but not limited to, income levels and geographies (Note that the BLS will count Federal Government workers that are currently furloughed as on payrolls since they will receive backpay).
…
Elsewhere, we estimate that the unemployment rate should be unchanged at 3.9% in January with a risk of it rising to 4% as furloughed workers will be counted as “unemployed on temporary layoff” in the household survey.

This mentions two key points: Government jobs on furlough will be counted in the establishment report since the workers will receive backpay, however those on furlough will be counted as unemployed (on temporary layoff) in the household report - so the unemployment rate might increase a little in January (perhaps to 4.1%).

by Calculated Risk on 1/28/2019 10:35:00 AM

From the Dallas Fed: Growth in Texas Manufacturing Activity Accelerates

Texas factory activity continued to expand in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 7.3 to 14.5, indicating an acceleration in output growth.

Other measures of manufacturing activity also suggested continued expansion in January, although the pace of demand growth slowed a bit. The capacity utilization index rose seven points to 14.8, and the shipments index rose five points to 11.4. Meanwhile, the new orders index edged down to 11.6 and the growth rate of new orders index fell from 5.8 to 1.2.

Perceptions of broader business conditions improved in January. The general business activity index rebounded from a multiyear low of -5.1 in December to 1.0 in January. This near-zero reading suggests manufacturers were fairly balanced in their assessment of whether activity had improved or worsened from last month. The company outlook index also rebounded from negative territory this month, rising more than 10 points to 7.1.

Labor market measures suggested slower growth in employment and workweek length in January. The employment index retreated four points to 6.6, a two-year low. Sixteen percent of firms noted net hiring, compared with 10 percent noting net layoffs. The hours worked index edged down to 3.6.
emphasis added

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

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

Based on these regional surveys, it seems likely the ISM manufacturing index will be at about the same level in January as in December. The consensus forecast is for a reading of 54.0 (to be released on Friday, February 1st).

by Calculated Risk on 1/28/2019 09:00:00 AM

From the Chicago Fed: Index Points to a Slight Increase in Economic Growth in December

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up slightly to +0.27 in December from +0.21 in November. Two of the four broad categories of indicators that make up the index increased from November, and two of the four categories made positive contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, edged up to +0.16 in December from +0.12 in November.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was slightly above the historical trend in December (using the three-month average).

According to the Chicago Fed:

The index is a weighted average of 85 indicators of growth in national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.
...
A zero value for the monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.

by Calculated Risk on 1/27/2019 07:09:00 PM

Weekend:
• Schedule for Week of January 27, 2019

Monday:
• At 8:30 AM ET, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for January. This is the last of regional manufacturing surveys for January.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 5 and DOW futures are down 35 (fair value).

Oil prices were down over the last week with WTI futures at $53.32 per barrel and Brent at $61.26 per barrel.  A year ago, WTI was at $66, and Brent was at $70 - so oil prices are down about 15% to 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.26 per gallon. A year ago prices were at $2.56 per gallon, so gasoline prices are down 30 cents per gallon year-over-year.