by Calculated Risk on 6/21/2012 09:54:00 PM

BuildFax Remodeling Index

Residential remodels authorized by building permits in the United States in April were at a seasonally-adjusted annual rate of 2,729,000. This is 2 percent above the revised March rate of 2,683,000 and is 12 percent above the April 2011 estimate of 2,447,000.

Seasonally-adjusted annual rates of remodeling across the country in April 2012 are estimated as follows: Northeast, 397,656 (up 5% from March and up 11% from April 2011); South, 1,102,000 (up 5% from March and up 14% from April 2011); Midwest, 484,000 (down 11% from March and up 7% from April 2011); West, 768,000 (up 2% from March and up 10% from April 2011).

"Remodeling continues to grow steadily in the U.S. on a seasonally-adjusted basis; more residential remodeling projects were started in April 2012 than in any of the prior six Aprils," said Joe Emison, Vice President of Research and Development at BuildFax

Three key components of residential investment are increasing: home improvement, new multi-family structures, and recently new single family structures.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 06:14:00 PM

Yesterday I argued that Fed Chairman Ben Bernanke had paved the way for QE3 as soon as August 1st, depending, as always, on incoming data. Others think the Fed will wait longer. Here are some different views:

From Merrill Lynch analysts (who all year have been predicting QE3 at the September FOMC meeting):

The Federal Reserve announced that it would extend Operation Twist through the end of the year, selling or rolling over $267bn of short-term holdings into longer-term Treasuries. We view this program as a down-payment on further easing: we still expect the Fed to launch QE3 in September and to push out its forward guidance to mid-2015 by August or September. Bernanke confirmed that the Fed stood ready to ease further if economic conditions warranted; under our forecast, deteriorating conditions will convince the Fed to ease again this fall.

From Goldman Sachs analysts (who thought there was a high probability QE3 would be announced at the meeting yesterday):

The FOMC's communication was dovish. First, changes to the committee's economic outlook were larger than expected, with significant downgrades to real GDP growth and employment. Second, the FOMC put in place a more explicit easing bias in the statement, saying that it "is prepared to take further action" should the recovery--and the job market in particular--continue to disappoint.

We believe further easing will be needed ... given our forecast for the economy--which remains below the Fed's own view--we also expect additional balance sheet expansion by early 2013.

However, the hurdle for additional balance sheet action in the next few months appears to be quite high. The fact that the FOMC took a "substantive" easing step today probably makes another easing move in the near term relatively unlikely.

And quite a few people wonder - given the Fed's own projections - why the Fed didn't do QE3 yesterday. From Paul Krugman:

The Fed has a dual mandate, employment and price stability. Its own projections show high unemployment persisting for years and years, inflation running below its target — and realistically its inflation projections are too high while its unemployment projections are too low. There is no rational argument I can see for not going all out with monetary stimulus.

But what we actually got was action that was pretty obviously calculated to be the absolute least the Fed could do without generating headlines saying “Fed ignores weak economy”.

CR Note: Perhaps an argument against a QE3 announcement on August 1st is there will not be much data released between now and the next FOMC meeting. For employment, the only major report will be the June employment report to be released on July 6th. Also the advance estimate for Q2 GDP will be released on July 27th. Still, if the data is weak, I expect the FOMC to provide additional accommodation at the August meeting.

by Calculated Risk on 6/21/2012 03:55:00 PM

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

The MBA reported yesterday that refinance activity increased again last week.

Earlier today from Freddie Mac: 30-Year Fixed-Rate Mortgage Averages 3.66 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates easing amid worsening economic indicators. Both the 30-year fixed and the 5-year ARM registered new average record lows.

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 21, 2012, down from last week when it averaged 3.71 percent. Last year at this time, the 30-year FRM averaged 4.50 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates are there! The 30 year conforming mortgage rates were at 4.23% in October 2010, so a 50 bps drop would be 3.73% - and rates hit 3.66% last week.

There was an increase this week in FHA streamlined refinances (due to lower premiums). And there has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 01:56:00 PM

Catching up ...

• From the Philly Fed: June 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading ...
...
The current employment index increased 3 points this month [to 1.8]. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through June. The ISM and total Fed surveys are through May.

The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level since last summer.

• Also this morning, the Markit Flash PMI came in below expectations at 52.9% (slower expansion).

• The Conference Board leading indicators increased 0.3% in May:

"Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum," said Ken Goldstein, economist at the Conference Board, a private research group. However, he added that ongoing U.S. and international challenges are making economic strengthening "difficult."

• The FHFA house price index showed further gains in April: FHFA House Price Index Up 0.8 Percent in April

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. ... For the 12 months ending in April, U.S. prices rose 3.0 percent.

by Calculated Risk on 6/21/2012 12:00:00 PM

The NAR reported inventory decreased to 2.49 million units in May, down 0.4% from the downwardly revised 2.50 million in April (revised down from 2.54 million). This is down 20.4% from May 2011, and down 2.6% from the inventory level in May 2005 (mid-2005 was when inventory started increasing sharply).

It is very likely that inventory will be below the comparable month in 2005 for the rest of the year. It is even possible that inventory has peaked for 2012 (or is at least very close to the peak).

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

The following graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

Click on graph for larger image.

This year (dark red for 2012) inventory is at the lowest level for the month of May since 2004, and inventory is below the level in May 2005 (not counting contingent sales). However inventory is still elevated using months-of-supply.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are above the sales for the 2008, 2009 and 2011 (2010 was slightly higher because of the tax credit). Sales are well below the bubble years of 2005 and 2006.

Also it appears distressed sales were down in May. From the NAR:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011.

This suggests non-distressed sales increased in May, and that is a positive sign for the housing market.

Earlier:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales graphs

by Calculated Risk on 6/21/2012 10:00:00 AM

The NAR reports: Existing-Home Sales Constrained by Tight Supply in May, Prices Continue to Gain

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.
...
Total housing inventory at the end of May slipped 0.4 percent to 2.49 million existing homes available for sale, which represents a 6.6-month supply2 at the current sales pace; there was a 6.5-month supply in April. Listed inventory is 20.4 percent below a year ago when there was a 9.1-month supply. Unsold inventory has trended down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May 2012 (4.55 million SAAR) were 1.5% lower than last month, and were 9.6% above the May 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 2.49 million in May from the downwardly revised 2.50 million in April (revised down from 2.54 million). Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.4% year-over-year in May from May 2011. This is the fifteenth consecutive month with a YoY decrease in inventory.

Months of supply increased slightly to 6.6 months in May.

This was at expectations of sales of 4.57 million. I'll have more soon ...


All current Existing Home Sales graphs

by Calculated Risk on 6/21/2012 08:38:00 AM

The DOL reports:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The previous week was revised up from 386,000 to 389,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 386,250.

The average had been between 363,000 and 384,000 all year, so this is a new high for the year.

And here is a long term graph of weekly claims:

This was above the consensus forecast of 383,000 and suggests some renewed weakness in the labor market.


All current Employment Graphs

by Calculated Risk on 6/20/2012 10:42:00 PM

Existing home sales for May is the key economic release on Thursday. And somewhat related, here is an interesting article on construction in Phoenix, from Bloomberg: Arizona’s Homebuilding Revival Sparks Bidding Wars for Workers (ht Brian)

After being decimated by the housing crash, Arizona’s builders are now scrounging for workers as demand for new homes climbs. Building permits are at an almost three-year high, creating a scarcity of framers, roofers and masons, many of whom moved elsewhere when work dried up. ...

Construction jobs, which also include commercial and government projects, increased 9.3 percent in May from a year earlier to 120,300, the biggest gain of any industry in the state, according to Arizona’s Office of Employment and Population Statistics. ...

“The industry is so wound down that it’s hard to flip the switch on and build as many homes as there is demand right now,” said Ben Sage, director of the Arizona region for Metrostudy, a Houston-based firm that tracks new construction. “The subcontractors are scrambling for workers.”

On Thursday:

• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 383 thousand from 386 thousand last week.

• At 9:00 AM, the Markit US PMI Manufacturing Index Flash will be released. This is a new release and might provide hints about the ISM PMI for June. The consensus is for a reading of 53.8, down slightly from 53.9 in May.

• At 10:00 AM, the NAR is scheduled to release existing home sales for May. The consensus is for sales of 4.57 million on seasonally adjusted annual rate (SAAR) basis. Housing economist Tom Lawler is forecasting the NAR will report sales of 4.66 million in May.

• Also at 10:00 AM, the Philly Fed manufacturing survey for June (consensus 0.5), the FHFA house price index for April, and the Conference Board Leading Indicators for May (consensus no change) will be released.

by Calculated Risk on 6/20/2012 06:20:00 PM

At the January press conference, Fed Chairman Ben Bernanke hinted at further accommodation (QE3) based on incoming data. Then the January and February employment reports were above expectations, and inflation also picked up a little due to the surge in oil and gasoline prices.

In April, based on the stronger data, the FOMC participants revised up their projections for GDP and inflation, and revised down their projections for the unemployment rate - and QE3 was put on hold.

Compare the current projections released today (below) not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projection.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse. As Tim Duy wrote, the projections are "shocking".

[T]his is a significant downward revision to the forecast for not just this year, but next year as well. Moreover, they expect no meaningful progress on the unemployment rate and the PCE inflation forecast remains centered well below 2%.

In the press conference today, Bernanke made it clear that further accommodation is very likely if employment indicators don't improve soon. He also pointed out that the Fed can't do any more "twisting" because of the lack of short duration securities.

And that strongly suggests QE3 following the two day meeting ending August 1st.

Also the FOMC statement was changed to "The Committee is prepared to take further action as appropriate ..." from "The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate ...". A little more aggressive.

One of the reasons I thought QE3 was unlikely today was the lack of foreshadowing from the Fed. Now the markets are prepared - and unless employment indicators pick up significantly, QE3 seems very likely. (Note: There is only one employment report between now and the next FOMC meeting - the June report on July 6th. Otherwise the Fed will rely on weekly unemployment claims and other indicators).

It is possible the Fed will wait until September (depending on incoming data), but right now I think QE3 will arrive on August 1st.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

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

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0

by Calculated Risk on 6/20/2012 04:25:00 PM

From the Census Bureau: Sharing a Household: Household Composition and Economic Well-Being: 2007–2010

In spring 2007, there were 19.7 million shared households. By spring 2010, the number of shared households had increased by 11.4 percent, while all households increased by only 1.3 percent

According to the report, there were 22.0 million shared households in spring 2010.

Most of the adults sharing a household were related:

In both 2007 and 2010, additional adults were more likely to live with relatives than with nonrelatives. In 2010, additional adults related to the householder accounted for 81.8 percent of all additional adults. ... additional adults related to the householder rose by 2.4 million ... Additional adults not related to the householder, i.e., roomates, housemates, or boarders, increased by 910,000 between 2007 and 2010.

About 1.2 million were adult children of the householder (823 thousand were in the 25 to 34 age bracket). These are the people that we discussed as "moving into their parent's basement". Other relatives moving in included parents, siblings, adult grandchildren (190 thousand), and others.

Definition from Census:

This report classifies a shared household as a household which includes at least one “additional adult,” a person aged 18 or older who is not enrolled in school and who is neither the householder, the spouse, nor the cohabiting partner of the householder.

A large number of these adults will eventually move out of their parent's (grandparent's) homes. The recent surge in rental demand suggests that many of these people are already moving out. This will be demand for housing units, although mostly for rental units.