by Calculated Risk on 9/17/2019 07:20:00 PM

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

• At 8:30 AM, Housing Starts for August. The consensus is for 1.250 million SAAR, up from 1.191 million SAAR.

• During the day: The AIA's Architecture Billings Index for July (a leading indicator for commercial real estate).

• At 2:00 PM, FOMC Meeting Announcement. The Fed is expected to lower the Fed Funds rate 25bps at this meeting..

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

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

by Calculated Risk on 9/17/2019 03:47:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in August

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.42 million in August, unchanged from July’s preliminary estimate and down 1.3% from last August’s seasonally adjusted pace. Unadjusted sales will probably be down slightly from a year ago, with the SA/NSA gap reflecting this August’s lower business day count relative to last August’s.

On the inventory front, local realtor/MLS data, as well as data from other inventory trackers, suggest that the inventory of existing homes for sale at the end of August should be about 2.1% lower than last August.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 5.5% from last August.

CR Note: The National Association of Realtors (NAR) is scheduled to released August existing home sales on Thursday at 10:00 AM ET. The consensus is for 5.38 million SAAR.

by Calculated Risk on 9/17/2019 12:47:00 PM

The CAR reported: Low interest rates boost California housing market as median home price sets another record, C.A.R. reports

The lowest mortgage interest rates in nearly three years helped jump start California’s housing market to post the first year-over-year sales gain and highest sales level in 15 months, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Fueled by mortgage interest rates at near-three-year lows, California’s housing market recorded a second consecutive year-over-year sales increase while the median home price reached a new high, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 406,100 units in August, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the August pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

August’s sales figure was down 1.3 percent from the 411,630 level in July and up 1.6 percent from home sales in August 2018 of 399,600. While cumulative sales through the first eight months of the year were down from last year, the pace of decline has improved significantly at -4.1 percent since the -12.5 percent recorded in January.

“Housing demand has exhibited signs of improvement in recent months as lower rates continued to reduce the cost of borrowing for home buyers,” said C.A.R. President Jared Martin. “However, buyers remain cautious, and many are reluctant to jump in because of the economic and market uncertainty that continue to linger, and that is keeping growth subdued despite significantly lower rates.”
...
After 15 straight months of year-over-year increases, active listing fell 8.9 percent from year ago, marking the first back-to-back decline since March 2018 and the largest since December 2017.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.2 months in August, unchanged from July and down from 3.3 months in August 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.
emphasis added

Here is some inventory data from the NAR and CAR (ht Tom Lawler).   Note that this is the second consecutive YoY decrease in inventory in California since early 2018.

YOY % Change, Existing SF Homes for Sale
	NAR (National)	CAR (California)
Sep-17	-8.4%	-11.2%
Oct-17	-10.4%	-11.5%
Nov-17	-9.7%	-11.5%
Dec-17	-11.5%	-12.0%
Jan-18	-9.5%	-6.6%
Feb-18	-8.6%	-1.3%
Mar-18	-7.2%	-1.0%
Apr-18	-6.3%	1.9%
May-18	-5.1	8.3%
Jun-18	-0.5%	8.1%
Jul-18	0.0%	11.9%
Aug-18	2.1%	17.2%
Sep-18	1.1%	20.4%
Oct-18	2.8%	28%
Nov-18	4.2%	31%
Dec-18	4.8%	30.6%
Jan-19	4.6%	27%
Feb-19	3.2%	19.2%
Mar-19	1.8%	13.4%
Apr-19	1.7%	10.8%
May-19	2.1%	7.4%
Jun-19	-0.05%	2.4%
Jul-19	-1.6	-2.1%
Aug-19	NA	-8.9%

by Calculated Risk on 9/17/2019 10:05:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 68 in September, up from 67 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Hits Yearly High in September

Builder confidence in the market for newly-built single-family homes rose one point to 68 in September from an upwardly revised August reading of 67, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Sentiment levels have held in the mid- to upper 60s since May and September’s reading matches the highest level since last October.

“Low interest rates and solid demand continue to fuel builders’ sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

“Solid household formations and attractive mortgage rates are contributing to a positive builder outlook,” said NAHB Chief Economist Robert Dietz. “However, builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China. NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”
…
The HMI index gauging current sales conditions increased two points to 75 and the component measuring traffic of prospective buyers held steady at 50. The measure charting sales expectations in the next six months fell one point to 70.

Looking at the three-month moving averages for regional HMI scores, the Northeast posted a two-point gain to 59, the West was also up two points to 75 and the South moved one point higher to 70. The Midwest was unchanged at 57.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast.

by Calculated Risk on 9/17/2019 09:24:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production rose 0.6 percent in August after declining 0.1 percent in July. Manufacturing production increased 0.5 percent, more than reversing its decrease in July. Factory output has increased 0.2 percent per month over the past four months after having decreased 0.5 percent per month during the first four months of the year. In August, the indexes for utilities and mining moved up 0.6 percent and 1.4 percent, respectively. At 109.9 percent of its 2012 average, total industrial production was 0.4 percent higher in August than it was a year earlier. Capacity utilization for the industrial sector increased 0.4 percentage point in August to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2018) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.9% is 1.9% below the average from 1972 to 2017 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in August to  109.9. This is 26% above the recession low, and 4.3% above the pre-recession peak.

The change in industrial production and increase in capacity utilization were above consensus expectations.

by Calculated Risk on 9/16/2019 07:38:00 PM

From Matthew Graham at Mortgage News Daily: Rates Recover Modestly, But Uncertainty Remains

[M]ortgage rates won't care in the slightest when and if the Fed cuts rates this Wednesday. The Fed's outlook on future rate cuts and on its policy stance in general will be of far more interest. Until we're through Fed day, volatility potential remains high. That said, the bond market was at least willing to respond to the weekend's Saudi oil news in an expected way (i.e. rates moved slightly lower as geopolitical risks flared). This suggests the bond market is approaching this week with a more open mind than last week (where traders pushed rates higher regardless of any argument to the contrary). [Most Prevalent Rates 30YR FIXED - 3.875%]
emphasis added

Tuesday:
• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to be unchanged at 77.5%.

• At 10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of  66, unchanged from 66 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

by Calculated Risk on 9/16/2019 04:48:00 PM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales increased to 8,726 in August, down from 9,192 in July, but up from 8,036 in August 2018. Sales were down 5.1% from July 2019 (last month), and up 8.6% from August 2018.

2) Active inventory was at 13,350, down from 16,035 in August 2018. That is down 16.6% year-over-year.

3) Months of supply in to 2.00 months in August from 1.96 months in July. This is low.

This is another market with increasing sales and falling inventory. With the decline in mortgage rates in August, we will probably see a further pickup in coming months.

by Calculated Risk on 9/16/2019 01:34:00 PM

CR September 2019 Update: In 2013, I wrote a post "Predicting the Next Recession". I repeated the post in January 2015 (and in the summer of 2015, in January 2016, in August 2016, in April 2017, in April 2018, and in October 2018) because of all the recession calls. In late 2015, the recession callers were out in force - arguing the problems in China, combined with the impact on oil producers of lower oil prices (and defaults by energy companies) - would lead to a global recession and drag the US into recession.  I didn't think so - and I was correct.

Once again the recession callers are out in force.  This time it is the global slowdown, the trade war, the jump in oil prices due to the attack on Saudi production facilities, and the Fed Funds rate being too tight (with an inverted yield curve).

I've added a few updates in italics by year.  Most of the text is from January 2013.

A few thoughts on the "next recession" ... Forecasters generally have a terrible record at predicting recessions. There are many reasons for this poor performance. In 1987, economist Victor Zarnowitz wrote in "The Record and Improvability of Economic Forecasting" that there was too much reliance on trends, and he also noted that predictive failure was also due to forecasters' incentives. Zarnowitz wrote: "predicting a general downturn is always unpopular and predicting it prematurely—ahead of others—may prove quite costly to the forecaster and his customers".

Incentives motivate Wall Street economic forecasters to always be optimistic about the future (just like stock analysts). Of course, for the media and bloggers, there is an incentive to always be bearish, because bad news drives traffic (hence the prevalence of yellow journalism).

In addition to paying attention to incentives, we also have to be careful not to rely "heavily on the persistence of trends". One of the reasons I focus on residential investment (especially housing starts and new home sales) is residential investment is very cyclical and is frequently the best leading indicator for the economy. UCLA's Ed Leamer went so far as to argue that: "Housing IS the Business Cycle". Usually residential investment leads the economy both into and out of recessions. The most recent recovery was an exception, but it was fairly easy to predict a sluggish recovery without a contribution from housing.

Since I started this blog in January 2005, I've been pretty lucky on calling the business cycle.  I argued no recession in 2005 and 2006, then at the beginning of 2007 I predicted a recession would start that year (made it by one month with the Great Recession starting in December 2007).  And in 2009, I argued the economy had bottomed and we'd see sluggish growth.

Finally, over the last 18 months, a number of forecasters (mostly online) have argued a recession was imminent.  I responded that I wasn't even on "recession watch", primarily because I thought residential investment was bottoming.

[CR 2015 Update: this was written two years ago - I'm not sure if those calling for a recession then have acknowledged their incorrect forecasts and / or changed theirs views (like ECRI and various bloggers). Clearly they were wrong.]

[CR April 2017 Update: Now it has been over four years!  And yes, ECRI has admitted their recession calls were incorrect.  Not sure about the rest of the recession callers.]

[CR September 2019 Update: Now it has been six and a half years!]

Now one of my blogging goals is to see if I can get lucky again and call the next recession correctly.  Right now I'm pretty optimistic (see: The Future's so Bright ...) and I expect a pickup in growth over the next few years (2013 will be sluggish with all the austerity).

The next recession will probably be caused by one of the following (from least likely to most likely):

3) An exogenous event such as a pandemic, significant military conflict, disruption of energy supplies for any reason, a major natural disaster (meteor strike, super volcano, etc), and a number of other low probability reasons. All of these events are possible, but they are unpredictable, and the probabilities are low that they will happen in the next few years or even decades.

[CR 2019 Update: the risk of a oil supply shock has risen - and possibly even a military conflict - but I don't think oil prices will rise enough to take the economy into recession.]

2) Significant policy error. This might involve premature or too rapid fiscal or monetary tightening (like the US in 1937 or eurozone in 2012).  Two examples: not reaching a fiscal agreement and going off the "fiscal cliff" probably would have led to a recession, and Congress refusing to "pay the bills" would have been a policy error that would have taken the economy into recession.  Both are off the table now, but there remains some risk of future policy errors. 

Note: Usually the optimal path for reducing the deficit means avoiding a recession since a recession pushes up the deficit as revenues decline and automatic spending (unemployment insurance, etc) increases.  So usually one of the goals for fiscal policymakers is to avoid taking the economy into recession. Too much austerity too quickly is self defeating.

[CR 2019 Update: We are seeing policy mistakes from the Trump administration on taxes, immigrations, and trade. See: When the Story Change, Be Alert. I'm watching for the impact of these policy mistakes.]

1) Most of the post-WWII recessions were caused by the Fed tightening monetary policy to slow inflation. I think this is the most likely cause of the next recession. Usually, when inflation starts to become a concern, the Fed tries to engineer a "soft landing", and frequently the result is a recession. Since inflation is not an immediate concern, the Fed will probably stay accommodative for a few more years.

So right now I expect further growth for the next few years (all the austerity in 2013 concerns me, especially over the next couple of quarters as people adjust to higher payroll taxes, but I think we will avoid contraction). [CR 2015 Update: We avoided contraction in 2013!] I think the most likely cause of the next recession will be Fed tightening to combat inflation sometime in the future - and residential investment (housing starts, new home sales) will probably turn down well in advance of the recession. In other words, I expect the next recession to be a more normal economic downturn - and I don't expect a recession for a few years.

[CR 2019 Update: This was written in 2013 - and my prediction for no "recession for a few years" was correct.  I'm still not on recession watch, and I don't expect a recession in the immediate future (not in the next 12 months). ]

by Calculated Risk on 9/16/2019 10:14:00 AM

First, some analysis from HotelNewsNow on the impact of short term rentals on hotels: The effects of maturing short-term rentals on US hotels

From HotelNewsNow.com: STR: US hotel results for week ending 7 September

The U.S. hotel industry reported negative year-over-year results in the three key performance metrics during the week of 1-7 September 2019, according to data from STR.

In comparison with the week of 2-8 September 2018, the industry recorded the following:

• Occupancy: -1.1% to 61.0%
• Average daily rate (ADR): -1.0% to US$121.37
• Revenue per available room (RevPAR): -2.1% at US$73.97

Reflective of the anticipation of Hurricane Dorian’s landfall, Miami/Hialeah, Florida, reported the steepest decline in RevPAR (-27.0% to US$60.47), due primarily to the largest drop in occupancy (-20.8% to 47.6%). The market registered the second-largest decrease in ADR (-7.9% to US$127.12).

Orlando, Florida, experienced the only other double-digit decline in occupancy (-14.8% to 51.9%) and the third-largest decrease in RevPAR (-13.7% to US$51.13).
emphasis added

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

Click on graph for larger image.

The red line is for 2019, dash light blue is 2018 (record year), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

Occupancy has been solid in 2019, and close to-date compared to the previous 4 years.

However occupancy will be lower this year than in 2018 (the record year).

Seasonally, the 4-week average of the occupancy rate will now move sideways until the Fall business travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 9/16/2019 08:34:00 AM

From the NY Fed: Empire State Manufacturing Survey

Business activity was little changed in New York State, according to firms responding to the September 2019 Empire State Manufacturing Survey. The headline general business conditions index edged down three points to 2.0. New orders were marginally higher than last month, and shipments grew modestly. Delivery times were steady, and inventories increased. Employment levels expanded, while the average workweek held steady.
...
After spending three months in negative territory, the index for number of employees rose to 9.7, pointing to an increase in employment levels, while the average workweek index came in at 1.7, indicating little change in hours worked.
…
Indexes assessing the six-month outlook suggested that optimism about future conditions waned. The index for future business conditions fell twelve points to 13.7.
emphasis added

This was lower than the consensus forecast.