by Calculated Risk on 4/01/2020 12:07:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency was declined to 0.65% in February, from 0.66% in January. The serious delinquency rate is down from 0.76% in February 2019.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

This is the lowest serious delinquency rate for Fannie Mae since June 2007.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Click on graph for larger image

By vintage, for loans made in 2004 or earlier (2% of portfolio), 2.46% are seriously delinquent. For loans made in 2005 through 2008 (4% of portfolio), 4.07% are seriously delinquent, For recent loans, originated in 2009 through 2018 (94% of portfolio), only 0.35% are seriously delinquent. So Fannie is still working through a few poor performing loans from the bubble years.

I expect the serious delinquency rate will increase in a few months due to COVID-19.

Note: Freddie Mac reported earlier.

by Calculated Risk on 4/01/2020 10:19:00 AM

From the Census Bureau reported that overall construction spending increased in February:

Construction spending during February 2020 was estimated at a seasonally adjusted annual rate of $1,366.7 billion, 1.3 percent below the revised January estimate of $1,384.5 billion. The February figure is 6.0 percent above the February 2019 estimate of $1,289.0 billion.
emphasis added

Both private and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $1,025.8 billion, 1.2 percent below the revised January estimate of $1,038.5 billion. ...

In February, the estimated seasonally adjusted annual rate of public construction spending was $340.9 billion, 1.5 percent below the revised January estimate of $345.9 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending had been increasing - but turned down in the 2nd half of 2018.  It started increasing again, but will slow due to the pandemic.  Residential spending is 17% below the previous peak.

Non-residential spending is 11% above the previous peak in January 2008 (nominal dollars).

Public construction spending is 5% above the previous peak in March 2009, and 30% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 11.3%. Non-residential spending is down slightly year-over-year. Public spending is up  7.4% year-over-year.

This was well below consensus expectations of a 0.6% increase in spending, however construction spending for December and January were revised up.

Construction spending will decline due to COVID-19, although construction is considered an essential service in most areas.

by Calculated Risk on 4/01/2020 10:04:00 AM

The ISM manufacturing index indicated contraction in March.  The PMI was at 49.1% in March, down from 50.1% in February. The employment index was at 43.8%, down from 46.9% last month, and the new orders index was at 42.2%, down from 49.8%.

From the Institute for Supply Management: March 2020 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in March, and the overall economy grew for the 131st consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The March PMI® registered 49.1 percent, down 1 percentage point from the February reading of 50.1 percent. The New Orders Index registered 42.2 percent, a decrease of 7.6 percentage points from the February reading of 49.8 percent. The Production Index registered 47.7 percent, down 2.6 percentage points compared to the February reading of 50.3 percent. The Backlog of Orders Index registered 45.9 percent, a decrease of 4.4 percentage points compared to the February reading of 50.3 percent. The Employment Index registered 43.8 percent, a decrease of 3.1 percentage points from the February reading of 46.9 percent.
emphasis added

This was above expectations of 45.0%, and suggests manufacturing contracted in March.

The index will be much worse in April due to COVID-19.

by Calculated Risk on 4/01/2020 08:19:00 AM

From ADP:

ADP National Employment Report: Private Sector Employment Decreased by 27,000 Jobs in March; the March NER Utilizes Data Through March 12 and Does Not Reflect the Full Impact of COVID-19 on the Overall Employment Situation

Private sector employment decreased by 27,000 jobs from February to March according to the March ADP National Employment Report®. ... The report utilizes data through the 12th of the month. The NER uses the same time period the Bureau of Labor and Statistics uses for their survey. As such, the March NER does not reflect the full impact of COVID-19 on the overall employment situation.
...
“It is important to note that the ADP National Employment Report is based on the total number of payroll records for employees who were active on a company’s payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “As such, the March NER does not fully reflect the most recent impact of COVID-19 on the employment situation, including unemployment claims reported on March 26, 2020.”

This was above the consensus forecast for 154,000 private sector jobs lost in the ADP report (the job losses will be in the April report due to timing).

The BLS report will be released Friday, and the consensus is for 100,000 non-farm payroll jobs lost in March.

by Calculated Risk on 4/01/2020 07:00:00 AM

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

Mortgage applications increased 15.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 27, 2020.

... The Refinance Index increased 26 percent from the previous week and was 168 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 11 percent from one week earlier. The unadjusted Purchase Index decreased 10 percent compared with the previous week and was 24 percent lower than the same week one year ago.
...
“Mortgage rates and applications continue to experience significant volatility from the economic and financial market uncertainty caused by the coronavirus crisis. After two weeks of sizeable increases, mortgage rates dropped back to the lowest level in MBA’s survey, which in turn led to a 25 percent jump in refinance applications,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The bleaker economic outlook, along with the first wave of realized job losses reported in last week’s unemployment claims numbers, likely caused potential homebuyers to pull back. Purchase applications were down over 10 percent, and after double-digit annual growth to start 2020, activity has fallen off last year’s pace for two straight weeks.”

Added Kan, “Buyer and seller traffic – and ultimately home purchases – will also likely be slowed this spring by the restrictions ordered in several states on in-person activities.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.47 percent from 3.82 percent, with points decreasing to 0.33 from 0.35 (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.

With record lower rates, we saw a huge increase in refinance activity in the survey over the last two weeks.

Note the Fed has stepped up buying of MBS the previous week.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is DOWN 24% year-over-year.

It appears purchase activity is falling sharply.

by Calculated Risk on 3/31/2020 07:02:00 PM

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

• At 8:15 AM, The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 154,000 payroll jobs lost in March, down from 183,000 added in February.

• At 10:00 AM, ISM Manufacturing Index for March. The consensus is for the ISM to be at 45.0, down from 50.1 in February.

• At 10:00 AM, Construction Spending for February. The consensus is for a 0.6% increase in construction spending.

• At Late, Light vehicle sales for March. The consensus is for light vehicle sales to be 11.9 million SAAR in March, down from 16.8 million in February (Seasonally Adjusted Annual Rate).

by Calculated Risk on 3/31/2020 05:34:00 PM

There is still far too little testing in the U.S.

Test-and-trace is a key criteria in starting to reopen the country.   My current guess is test-and-trace will require around 300,000 tests per day at first since the US is far behind the curve.

When I first started posting this data (thanks to the COVID Tracking Project), testing was so low, that just tracking the number of tests made sense.

The percentage positive is also critical. Unfortunately some states and labs don't report all negative tests, although that is supposed to change soon.

The real key is to have enough tests that the US can test all people with symptoms (even mild), all close contacts of those testing positive (aka Test-and-Trace), healthcare workers and first responders fairly regularly (upon request), staff at retirement communities and nursing homes, and those people that regularly visit those facilities (it is a burden on older people not see their families).

Notes: Data for the previous couple of days is updated and revised, so graphs might change.

Also, I include all tests in the total including pending.

The percent positive excludes the pending tests.

There were 98,264 tests reported over the last 24 hours.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 23% (red line - going the wrong way).

Testing must continue to be expanded until the percent positive declines to 5% or lower.   This is based on results from South Korea.

Test. Test. Test. Protect healthcare workers first!

by Calculated Risk on 3/31/2020 11:28:00 AM

This is a healthcare crisis, and the economic outlook is based on presumptions about the course of the pandemic.  A key model suggests peak healthcare resource use will be around April 15th, but the peak will not be until May in many areas of the country.   Of course, this requires cooperation of the public.

Before areas can start easing restrictions, the US will need to have sufficient healthcare services and equipment, masks for everyone (it seems likely that it will be recommended that everyone wear a mask), and adequate testing to do surveillance monitoring. Right now, we are well short of all of these requirements, but making progress.   It is possible we could see some restriction easing in June.

Some impacts are already clear: travel is down significantly impacting airlines and hotels, restaurants (except takeout and delivery) and movie theaters are closed.  Many local businesses are closed too - like gyms, barber shops, and flower stands.

Also I expect new and existing home sales will decline sharply, although both residential and commercial construction is ongoing in many places.

Goldman Sachs economists wrote today:

We are making further significant adjustments to our GDP and employment estimates. We now forecast real GDP growth of -9% in Q1 and -34% in Q2 in qoq annualized terms (vs. -6% and -24% previously) and see the unemployment rate rising to 15% by midyear (vs. 9% previously). However, we have upgraded our expectations for the recovery after midyear, with a 19% qoq annualized GDP gain in Q3 (vs. 12% previously). Our estimates imply that a bit more than half of the near-term output decline is made up by year end and that real GDP falls 6.2% in 2020 on an annual-average basis (vs. 3.7% in our previous forecast).

Unlike the great recession, when the situation kept getting worse month after month, the worst economic impact will probably be early, in the months of April and May. Although there is a concern that missed payments will ripple through the system leading to financial problems. This was the purpose of the $2+ Trillion disaster relief package - to help people pay their bills including rent and mortgage (Note: This was NOT a "stimulus" package, this was disaster relief).

My current guess is the economy will start growing - slowly - in June (maybe July).   But growth will likely be slow at first as people put their toes in the water.  I don't expect a "V" shaped recovery unless there is an effective treatment or a vaccine, then growth will pick up quicker.

This is all subject to the course of the pandemic.  Stay healthy!

by Calculated Risk on 3/31/2020 10:29:00 AM

Note: With COVID-19, there will be far fewer real estate transaction for several months. This could distort the house price indexes - since there will be far fewer repeat sales.

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 January 2020). 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 have 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 3/31/2020 09:11:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for January ("January" is a 3 month average of November, December and January 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: S&P CoreLogic Case-Shiller Index Shows Continued Growth In Annual Home Price Gains To Start 2020

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.9% annual gain in January, up from 3.7% in the previous month. The 10-City Composite annual increase came in at 2.6%, up from 2.3% in the previous month. The 20-City Composite posted a 3.1% year-over-year gain, up from 2.8% in the previous month.

Phoenix, Seattle and Tampa reported the highest year-over-year gains among the 20 cities. In January, Phoenix led the way with a 6.9% year-over-year price increase, followed by 5.1% increases in Seattle and Tampa. Fourteen of the 20 cities reported higher price increases in the year ending January 2020 versus the year ending December 2019.
...
The National Index and 20-City Composite were flat month-over-month, while the 10-City Composite posted a 0.1% decrease before seasonal adjustment in January. After seasonal adjustment, the National Index posted a month-over-month increase of 0.5%, while the 10-City and 20-City Composites both posted 0.3% increases. In January, 10 of 20 cities reported increases before seasonal adjustment while 18 of 20 cities reported increases after seasonal adjustment.

"The trend of stable growth established in 2019 continued into the first month of the new year,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index rose by 3.9% in January 2020, and the 10- and 20-City Composites also advanced (by 2.6% and 3.1% respectively). Results for the month were broad-based, with gains in every city in our 20-City Composite; 14 of the 20 cities saw accelerating prices. As has been the case since mid-2019, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in January than they had done in December.
…
“It is important to bear in mind that today’s report covers real estate transactions closed during the month of January. The COVID-19 pandemic did not begin to take hold in the U.S. until late February, and thus whatever impact it will have on housing prices is not reflected in today’s data.”
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 2.9% from the bubble peak, and up 0.3% in January (SA) from December.

The Composite 20 index is 6.8% above the bubble peak, and up 0.3% (SA) in January.

The National index is 16% above the bubble peak (SA), and up 0.5% (SA) in January.  The National index is up 57% 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 2.5% compared to January 2019.  The Composite 20 SA is up 3.1% year-over-year.

The National index SA is up 3.9% year-over-year.

Note: According to the data, prices increased in 18 of 20 cities month-over-month seasonally adjusted.

I'll have more later.