by Calculated Risk on 12/09/2019 08:05:00 PM

From Matthew Graham at MortgageNewsDaily: Mortgage Rates Snap Back to Lower Levels

Mortgage rates reacted somewhat harshly to an incredibly strong jobs report last Friday. … There will always be some obligatory response to a report as strong as that. That was indeed the case on Friday and mortgage lenders were a bit defensive in setting rates. Fortunately, the underlying bond market improved throughout the day and held onto that improvement today. As such, lenders were willing to offer much lower rates versus Friday. [Today's Most Prevalent Rates For Top Tier Scenarios 30YR FIXED - 3.75 - 3.875%]

Click on graph for larger image.

This graph from Mortgage News Daily shows mortgage rates since 2014.

This graph is interactive, and you could view mortgage rates back to the mid-1980s - click here for interactive graph.

by Calculated Risk on 12/09/2019 02:02:00 PM

Former Fed Chair Paul Volcker has passed away. From the NY Times: Paul A. Volcker, Fed Chairman Who Waged War on Inflation, Is Dead at 92

Here are some excerpts from a prescient speech in February 2005: Paul Volcker Feb 2005 Stanford Speech

A few selected excerpts:

"Altogether, the circumstances seem as dangerous and intractable as I can remember."

"Boomers are spending like there is no tomorrow."

"Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."

"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."

"What I'm really talking about boils down to the oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline."

by Calculated Risk on 12/09/2019 11:12:00 AM

The consensus is there will no change to policy when the FOMC meets this week. After three rate cuts earlier this year, the FOMC appears to be on hold.

The unemployment rate and inflation projections will probably be revised down slightly. From Goldman Sachs:

[W]e expect only a minor change to the statement’s characterization of the economy, with overall growth still characterized as “moderate” but consumption downgraded to “solid.” We also expect the economic projections to show a lower unemployment rate path (and a slightly lower NAIRU) and lower inflation this year. … Following comments from many Fed officials that policy is now "in a good place," we expect the statement to indicate that the current stance of policy is “likely to remain appropriate.” As a result, we also look for the great majority of the 2020 dots to show an unchanged policy rate.

Here are the September FOMC projections.

Q1 real GDP growth was at 3.1% annualized, Q2 at 2.0% and Q3 at 2.1%. Currently most analysts are projecting around 1% to 2% in Q4. So the GDP projections will probably be little changed.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2019	2020	2021
Sept 2019	2.1 to 2.3	1.8 to 2.1	1.8 to 2.0
Jun 2019	2.0 to 2.2	1.8 to 2.2	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 3.5% in November.  The unemployment rate projection for Q4 2019 will probably be revised down slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2019	2020	2021
Sept 2019	3.6 to 3.7	3.6 to 3.8	3.6 to 3.9
Jun 2019	3.6 to 3.7	3.5 to 3.9	3.6 to 4.0

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

As of October 2019, PCE inflation was up 1.3% from October 2018 So PCE inflation projections will probably be revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2019	2020	2021
Sept 2019	1.5 to 1.6	1.9 to 2.0	2.0
Jun 2019	1.5 to 1.6	1.9 to 2.0	2.0 to 2.1

PCE core inflation was up 1.6% in October year-over-year. So Core PCE inflation will probably be revised down sligthly.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2019	2020	2021
Sept 2019	1.7 to 1.8	1.9 to 2.0	2.0
Jun 2019	1.7 to 1.8	1.9 to 2.0	2.0 to 2.1

In general, both unemployment and inflation are lower than expected.

by Calculated Risk on 12/09/2019 09:51:00 AM

Black Knight released their Mortgage Monitor report for October today. According to Black Knight, 3.39% of mortgages were delinquent in October, down from 3.64% in October 2018. Black Knight also reported that 0.48% of mortgages were in the foreclosure process, down from 0.52% a year ago.

This gives a total of 3.87% delinquent or in foreclosure.

Press Release: Black Knight Mortgage Monitor: Servicer Retention Rates Fall in Q3 2019 Despite Refinance Volumes Hitting Highest Point in Nearly Three Years

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. This month, in light of the recent surge in refinance volumes, Black Knight looked at how servicers’ retention rates of refinancing borrowers have fared. As Black Knight Data & Analytics President Ben Graboske explained, despite refinance volumes hitting their highest point in nearly three years, retention rates fell in Q3 2019.

“After hitting an 18-year low in the fourth quarter of 2018, refinance lending has nearly doubled since then,” said Graboske. “The bulk of that increase was driven by people refinancing to improve the rate or term on their current mortgage, with five times the number of such rate/term refis as there were in Q4 2018. Cash-out refinances were up as well, although by a more modest 24% over the same period. Still, cash-outs made up 52% of all Q3 2019 refinances, with homeowners withdrawing more than $36 billion in equity, the highest amount withdrawn via cash-outs in nearly 12 years. Given that tappable equity continues to grow – $6.2 trillion as of Q3 2019 – and the continued headwinds facing the HELOC market, this is a segment lenders and servicers may likely focus on in coming months. Any upward movement in rates would likely only drive the cash-out share of lending higher.

“But for both cash-out and rate/term refinances, borrowers are leaving their servicers at significant rates despite this surge in activity. Just 22% of borrowers stayed with their servicer post-refinance in Q3 2019. The business of nearly three of every four rate/term refinance borrowers – historically an easier segment to retain – was lost, with servicers retaining just 26% of borrowers, down from 29% in Q2 2019. Cash-out borrower retention was even more dismal, though, as servicers lost more than four out of every five borrowers post-refinance. That’s the lowest retention rate among that segment in more than two years. While refinance activity is up across the board, the characteristics of refinancing borrowers – along with their motivation and ‘trigger points’ to refinance – are anything but uniform. Advanced portfolio and market analysis can help servicers better understand changing borrower dynamics and tune their strategies accordingly.”
emphasis added

Click on graph for larger image.

Here is a graph from the Mortgage Monitor that shows the National Delinquency Rate over time.

From Black Knight:

• While October delinquency rate declines are common, this year's nearly 4% drop was almost twice the 20-year average

• The national delinquency rate is now 1.15% below its pre-recession (2000-2005) average, the largest such delta on record

• As delinquencies tend to trend upward seasonally in both November and December, a rise in the coming months would not be unexpected

The second graph shows equity withdrawn via cash-out refinances and 2nd mortgages:

• In Q3 2019, refinance lending hit its highest level in nearly three years, fueled by an increase in rate/term refinances

• The bulk of that increase was driven by people refinancing to improve the rate or term on their current mortgage, with 5X the number of such rate/term refis as there were in Q4 2018

• Cash-out refinances were up as well, although by a more modest 24%, over the same period

• Still, cash-outs made up 52% of all Q3 2019 refinances, with homeowners withdrawing more than $36 billion in equity, the largest amount in nearly 12 years

• Any upward movement in rates would likely drive the cash-out share of lending higher

There is much more in the mortgage monitor.

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

Weekend:
• Schedule for Week of December 8, 2019

Monday:
• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 5, and DOW futures are down 36 (fair value).

Oil prices were up over the last week with WTI futures at $58.90 per barrel and Brent at $64.19 barrel.  A year ago, WTI was at $53, and Brent was at $62 - so oil prices are up year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.58 per gallon. A year ago prices were at $2.42 per gallon, so gasoline prices are up 16 cents year-over-year.

by Calculated Risk on 12/08/2019 11:05:00 AM

Note: Due to the timing of Thanksgiving, the occupancy rate was down sharply YoY last week. The rate was up sharply in the previous report.

From HotelNewsNow.com: STR: US hotel results for week ending 30 November

he U.S. hotel industry reported negative year-over-year results in the three key performance metrics during the week of 24-30 November 2019, according to data from STR.

In comparison with the week of 25 November through 1 December 2018, the industry recorded the following:

• Occupancy: -11.6% to 50.6%
• Average daily rate (ADR): -6.7% to US$112.28
• Revenue per available room (RevPAR): -17.5% to US$56.83

STR analysts attribute significant performance declines to comparison of Thanksgiving week in 2019 against the week that followed the holiday in 2018.
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 decline into the winter.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/07/2019 08:11:00 AM

The key economic reports this week are November CPI and Retail Sales.

The FOMC meets this week, and no change to policy is expected.

----- Monday, Dec 9th -----
No major economic releases scheduled.

----- Tuesday, Dec 10th -----
6:00 AM: NFIB Small Business Optimism Index for November.

----- Wednesday, Dec 11th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The Consumer Price Index for November from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

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

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.

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

----- Thursday, Dec 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 212,000 initial claims, up from 203,000 last week.

8:30 AM: The Producer Price Index for November from the BLS. The consensus is for a 0.2% increase in PPI, and a 0.2% increase in core PPI.

12:00 PM: Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Friday, Dec 13th -----
8:30 AM ET: Retail sales for November will be released.  The consensus is for a 0.4% increase in retail sales.

This graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales, ex-gasoline, increased by 3.9% on a YoY basis.

by Calculated Risk on 12/06/2019 03:04:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

Rail traffic continues to struggle because U.S. manufacturing is soft, trade disputes and the uncertainty they entail are ongoing, and economic growth abroad isn’t what it could be.
...
In November 2019, total U.S. rail carloads were down 7.5% and total intermodal originations were down 7.4% from November 2018 — making 10 straight monthly declines for both.
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows the year-over-year changes in U.S. Carloads.

That U.S. railroads are in a prolonged slump isn’t in doubt, and it’s not something a few visits with a sports psychologist can break. In November 2019, total originated carloads on U.S. railroads fell 7.5% (77,166 carloads) from November 2018 — their tenth consecutive monthly decline. In the first 11 months of November, total carloads were down 4.6% (574,287 carloads) and were the lowest for any year since sometime before 1988, when our data begin.

The second graph is the year-over-year change for intermodal traffic (using intermodal or shipping containers):

U.S. intermodal originations in November 2019 were down 7.4% from November 2018, also their tenth consecutive decline. Year-to-date intermodal volume was 4.7% lower (635,001 containers and trailers) than in the same period in 2018.

by Calculated Risk on 12/06/2019 02:48:00 PM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada home prices stay the same for two months, still up from last year GLVAR housing statistics for November 2019

The total number of existing local homes, condos and townhomes sold during November was 2,946. Compared to one year ago, November sales were up 5.0% for homes, but down 4.6% for condos and townhomes.

By the end of November, GLVAR reported 6,531 single-family homes listed for sale without any sort of offer. That’s down 6.7% from one year ago. For condos and townhomes, the 1,711 properties listed without offers in November represented a 6.6% increase from one year ago.
...
Along the same lines, the number of so-called distressed sales remains near historically low levels. GLVAR reported that short sales and foreclosures combined accounted for just 2.0% of all existing local property sales in November. That compares to 2.6% of all sales one year ago and just under 5% two years ago.
emphasis added

1) Overall sales were up 3.1% year-over-year to 2,946 in November 2019 from 2,857 in November 2018.

2) Active inventory (single-family and condos) is down from a year ago, from a total of 8,608 in November 2018 to 8,242 in November 2019. Note: Total inventory was down 4.3% year-over-year. This year-over-year decrease follows 16 consecutive months with a YoY increase in inventory.  And months of inventory is still low.

3) Low level of distressed sales.

by Calculated Risk on 12/06/2019 12:14:00 PM

From Goldman Sachs:

[W]e lowered our Q4 GDP tracking estimate by one tenth to +1.8% (qoq ar) [Dec 5 estimate]
emphasis added

From Merrill Lynch

This week, our ... 4Q GDP tracking estimate edged down by 0.1pp to 1.6% on weaker than expected residential spend in Oct. [Dec 6 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 0.6% for 2019:Q4 and 0.7% for 2020:Q1. [Dec 6 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2019 is 2.0 percent on December 6, up from 1.5 percent on December 5. [Dec 6 estimate]

CR Note: These early estimates suggest real GDP growth will be between 0.6% and 2.0% annualized in Q4.