by Calculated Risk on 10/09/2014 07:10:00 PM

A couple of notes today from housing economist Tom Lawler:

NAR on Pending Home Sales Index in the West --- We Know Already

In one of last week’s reports I highlighted how the National Association of Realtors’ Pending Home Sales Index for the West region (not seasonally adjusted) was inconsistent both with the pattern of closed sales in the West and with local realtor/MLS reports from that region.

 It turns out that the NAR is “aware of the fact that (their) pending data in the West does not look correct,” and they are going through their records to see if they can figure out why. The NAR argues, however, that the YOY trend changes look fine, and “line up” better with other reported data.

 From my perspective, if the underlying, unadjusted data are wrong, I’d be leery of the YOY trends as well. As such, analysts are cautioned not to place much weight in the PHSI until the NAR fixes the underlying data.

HMDA Data on Mortgage Originations Suggest All-Cash Share Peaked in 2011

HMDA data show that the number of purchase mortgage originations by HMDA reporters in 2013 was up 13.6% from 2012. HMDA purchase mortgage originations in 2012 were up 13.1% from 2011. In both years the percentage increase in the number of purchase mortgage originations modestly exceeded the percentage increase in estimated total home sales. That was in stark contrast to the previous six years, when the number of purchase mortgage originations fell relative to the estimated number of home sales - with especially steep relative declines from 2008 to 2011. These data suggest that the “all-cash” share of home sales hit an annual high in 2011, but still remained unusually high last year.

by Calculated Risk on 10/09/2014 03:10:00 PM

From HotelNewsNow.com: STR: US results for week ending 4 October

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 28 September through 4 October 2014, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy rose 2.8 percent to 66.5 percent. Average daily rate increased 3.7 percent to finish the week at US$115.93. Revenue per available room for the week was up 6.6 percent to finish at US$77.04.
emphasis added

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

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

There is always a dip in occupancy after the summer (less leisure travel), and then more business travel in the Fall.

Click on graph for larger image.

The red line is for 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at about the level as for the same week in 2000 (the previous high). 

Right now it looks like 2014 will be the best year since 2000 for hotels.   Since it takes some time to plan and build hotels, I expect 2015 will be a record year for hotel occupancy.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 10/09/2014 01:02:00 PM

Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And at the beginning of this year I argued house price increases would slow in 2014 because of the increase in inventory.

I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is slowing in some former distressed markets.  

The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento (September not available yet).  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It now appears the inventory build is slowing in these markets.

This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  But now that prices have flattened out - and there is plenty of inventory - potential sellers aren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings will not grow to the moon!

I still expect overall inventory to continue to increase, but this is something to watch.

Year-over-year Change in Active Inventory
Month	Las Vegas	Phoenix	Sacramento
Jan-13	-58.3%	-11.7%	-61.1%
Feb-13	-53.4%	-8.5%	-51.1%
Mar-13	-42.1%	-5.2%	-37.8%
Apr-13	-24.1%	-4.9%	-10.3%
May-13	-13.2%	-2.1%	5.3%
Jun-13	3.7%	-1.6%	18.3%
Jul-13	9.0%	-1.6%	54.3%
Aug-13	41.1%	2.4%	46.8%
Sep-13	60.5%	7.8%	77.3%
Oct-13	73.4%	15.7%	93.2%
Nov-13	77.4%	15.2%	56.8%
Dec-13	78.6%	20.9%	44.2%
Jan-14	96.2%	29.6%	96.3%
Feb-14	107.3%	37.7%	87.8%
Mar-14	127.9%	45.5%	71.2%
Apr-14	103.1%	48.8%	46.3%
May-14	100.6%	47.4%	83.7%
Jun-14	86.2%	43.1%	91.0%
Jul-14	55.2%	35.1%	68.0%
Aug-14	38.8%	21.9%	60.6%
Sep-14	29.5%	13.2%	NA

by Calculated Risk on 10/09/2014 10:45:00 AM

From Trulia chief economist Jed Kolko: Condo Prices and Apartment Rents Outpacing Single-Family Home Costs

Nationally, the month-over-month increase in asking home prices rose to 0.8% in September. Year-over-year, asking prices rose 6.4%, down from the 10.4% year-over-year increase in September 2013. Asking prices rose year-over-year in 92 of the 100 largest U.S. metros.
...
Nationally, rents rose 6.5% year-over-year in September. Apartment rents were up 6.9%, while single-family home rents gained 5.2%. Like the for-sale market, the rental market is tighter for multi-unit buildings than for single family homes.
emphasis added

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases have slowed, the month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis.

by Calculated Risk on 10/09/2014 08:30:00 AM

The DOL reports:

In the week ending October 4, the advance figure for seasonally adjusted initial claims was 287,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 287,000 to 288,000. The 4-week moving average was 287,750, a decrease of 7,250 from the previous week's revised average. This is the lowest level for this average since February 4, 2006 when it was 286,500. The previous week's average was revised up by 250 from 294,750 to 295,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 288,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

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 decreased to 287,750.

Note: The low for the 4-week average in 2006 was 286,500 - so just a little lower and this will be the lowest since early 2000.

This was below the consensus forecast of 293,000 and in the normal range for an expansion.

by Calculated Risk on 10/08/2014 07:54:00 PM

From Binyamin Appelbaum at the NY Times: Fed Officials Reinforce Rate Outlook, but Seek Flexibility

The minutes showed that the central bank was continuing to play for time as it sought greater clarity about the health of the economy. Job growth has been relatively strong this year, and the unemployment rate is fast falling toward what the Fed regards as a normal level. But inflation has been relatively weak, a problem in its own right, and there is strong evidence the labor market may be weaker than it seems.

Economic data since the meeting has accentuated both trends. The economy added 248,000 jobs in September, while inflation was again weaker than expected. The growth of other large economies is also lagging behind the United States, and some of those countries are pushing to devalue their currencies.

Fed officials at the meeting expressed concerns that these trends could weaken domestic growth and further suppress inflation. The Fed’s staff reported that it did not expect inflation to reach the Fed’s preferred 2 percent annual pace over the next several years.

Thursday:
• Early: Trulia Price Rent Monitors for September. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 293 thousand from 287 thousand.

• At 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for August. The consensus is for a 0.3% increase in inventories

by Calculated Risk on 10/08/2014 04:04:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported GLVAR reports local home prices inching up as fewer homes are selling

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in September was 2,982, down from 3,120 in August and down from 3,259 one year ago. [GLVAR President Heidi] Kasama said local home sales so far in 2014 are running about 12 percent behind last year’s pace. At the current pace, she said Southern Nevada has less than a four-month supply of available properties.
...
GLVAR said 34.3 percent of all local properties sold in September were purchased with cash. That’s up from 32.1 percent in August, but still near a five-year low and well short of the February 2013 peak of 59.5 percent, suggesting that fewer investors have been buying homes in Southern Nevada.
...
For nearly two years, GLVAR has reported fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. That trend continued in September, when GLVAR reported 10.4 of all sales were short sales – which occur when lenders allow borrowers to sell a home for less than what they owe on the mortgage. That’s down from 11.5 percent in August. Another 8.8 percent of all September sales were bank-owned properties, down from 8.9 percent in August.
...
The total number of single-family homes listed for sale on GLVAR’s Multiple Listing Service in September was 13,857, up 0.8 percent from 13,752 in August, but down 5.5 percent from one year ago. ...

By the end of September, GLVAR reported 8,196 single-family homes listed without any sort of offer. That’s up 5.2 percent from 7,788 such homes listed in August, and a 29.5 percent jump from one year ago.
emphasis added

There are several key trends that we've been following:

1) Overall sales were down about 8.5% year-over-year.

2) Conventional (equity, not distressed) sales were up 6% year-over-year.  In September 2013, only 69.6% of all sales were conventional equity.  This year, in September 2014, 80.8% were equity sales. 

3) The percent of cash sales has declined year-over-year from 47.2% in September 2013 to 34.3% in September 2014. (investor buying appears to be declining).

4) Non-contingent inventory is up 29.5% year-over-year. The table below shows the year-over-year change for non-contingent inventory in Las Vegas. Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It appears the inventory build is slowing (an important change).

Las Vegas: Year-over-year Change in Non-contingent Inventory
Month	YoY
Jan-13	-58.3%
Feb-13	-53.4%
Mar-13	-42.1%
Apr-13	-24.1%
May-13	-13.2%
Jun-13	3.7%
Jul-13	9.0%
Aug-13	41.1%
Sep-13	60.5%
Oct-13	73.4%
Nov-13	77.4%
Dec-13	78.6%
Jan-14	96.2%
Feb-14	107.3%
Mar-14	127.9%
Apr-14	103.1%
May-14	100.6%
Jun-14	86.2%
Jul-14	55.2%
Aug-14	38.8%
Sep-14	29.5%

by Calculated Risk on 10/08/2014 02:00:00 PM

Note: Not every member of the FOMC agrees, but I think this is the key sentence: "the costs of downside shocks to the economy would be larger than those of upside shocks because, in current circumstances, it would be less problematic to remove accommodation quickly, if doing so becomes necessary, than to add accommodation".

There was also some discussion about the impact of a strong dollar (weaker exports, lower inflation).

From the Fed: Minutes of the Federal Open Market Committee, September 16-17, 2014. Excerpts:

Inflation had been running below the Committee's longer-run objective, and the readings on consumer prices over the intermeeting period were somewhat softer than during the preceding four months, in part because of declining energy prices. Most participants anticipated that inflation would move gradually back toward its objective over the medium term. However, participants differed somewhat in their assessments of how quickly inflation would move up. Some cited the stability of longer-run inflation expectations at a level consistent with the Committee's objective as an important factor in their forecasts that inflation would reach 2 percent in coming years. Participants' views on the responsiveness of inflation to the level and change in resource utilization varied, with a few seeing labor markets as sufficiently tight that wages and prices would soon begin to move up noticeably but with some others indicating that inflation was unlikely to approach 2 percent until the unemployment rate falls below its longer-run normal level. While most viewed the risk that inflation would run persistently below 2 percent as having diminished somewhat since earlier in the year, a couple noted the possibility that longer-term inflation expectations might be slightly lower than the Committee's 2 percent objective or that domestic inflation might be held down by persistent disinflation among U.S. trading partners and further appreciation of the dollar.

In their discussion of the appropriate path for monetary policy over the medium term, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook. That said, several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions. In addition, the concern was raised that the reference to "considerable time" in the current forward guidance could be misunderstood as a commitment rather than as data dependent. However, it was noted that the current formulation of the Committee's forward guidance clearly indicated that the Committee's policy decisions were conditional on its ongoing assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation, and that its assessment reflected its review of a broad array of economic indicators. It was emphasized that the current forward guidance for the federal funds rate was data dependent and did not indicate that the first increase in the target range for the federal funds rate would occur mechanically after some fixed calendar interval following the completion of the current asset purchase program. If employment and inflation converged more rapidly toward the Committee's goals than currently expected, the date of liftoff could be earlier, and subsequent increases in the federal funds rate target more rapid, than participants currently anticipated. Conversely, if employment and inflation returned toward the Committee's objectives more slowly than currently anticipated, the date of liftoff for the federal funds rate could be later, and future federal funds rate target increases could be more gradual. In addition, some participants saw the current forward guidance as appropriate in light of risk-management considerations, which suggested that it would be prudent to err on the side of patience while awaiting further evidence of sustained progress toward the Committee's goals. In their view, the costs of downside shocks to the economy would be larger than those of upside shocks because, in current circumstances, it would be less problematic to remove accommodation quickly, if doing so becomes necessary, than to add accommodation. A number of participants also noted that changes to the forward guidance might be misinterpreted as a signal of a fundamental shift in the stance of policy that could result in an unintended tightening of financial conditions.

Participants also discussed how the forward-guidance language might evolve once the Committee decides that the current formulation no longer appropriately conveys its intentions about the future stance of policy. Most participants indicated a preference for clarifying the dependence of the current forward guidance on economic data and the Committee's assessment of progress toward its objectives of maximum employment and 2 percent inflation. A clarification along these lines was seen as likely to improve the public's understanding of the Committee's reaction function while allowing the Committee to retain flexibility to respond appropriately to changes in the economic outlook. One participant favored using a numerical threshold based on the inflation outlook as a form of forward guidance. A few participants, however, noted the difficulties associated with expressing forward guidance in terms of numerical thresholds for some set of economic variables. Another participant indicated a preference for reducing reliance on explicit forward guidance in the statement and conveying instead guidance regarding the future stance of monetary policy through other mechanisms, including the SEP. It was noted that providing explicit forward guidance regarding the future path of the federal funds rate might become less important once a highly accommodative stance of policy is no longer appropriate and the process of policy normalization is well under way.

It was generally agreed that when changes to the forward guidance become appropriate, they will likely present communication challenges, and that caution will be needed to avoid sending unintended signals about the Committee's policy outlook.
emphasis added

by Calculated Risk on 10/08/2014 11:17:00 AM

From the CBO: Monthly Budget Review for September 2014

The federal government ran a budget deficit of $486 billion in fiscal year 2014, the Congressional Budget Office (CBO) estimates—$195 billion less than the shortfall recorded in fiscal year 2013, and the smallest deficit recorded since 2008. Relative to the size of the economy, that deficit—at an estimated 2.8 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 40 years, and 2014 was the fifth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009. By CBO’s estimate, revenues were about 9 percent higher and outlays were about 1 percent higher in 2014 than they were in the previous fiscal year. CBO’s deficit estimate is based on data from the Daily Treasury Statements; the Treasury Department will report the actual deficit for fiscal year 2014 later this month.

A deficit of $486 billion for 2014 would be $20 billion smaller than the shortfall that CBO projected in its August 2014 report An Update to the Budget and Economic Outlook: 2014 to 2024.
emphasis added

This is an improvement over the recent estimate. The Treasury will release their fiscal year 2014 report on Friday.

by Calculated Risk on 10/08/2014 07:01:00 AM

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

Mortgage applications increased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 3, 2014. ...

The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier to the highest level since early July. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 8 percent lower than the same week one year ago....
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.30 percent from 4.33 percent, with points decreasing to 0.19 from 0.31 (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.

The refinance index is down 75% from the levels in May 2013.

Refinance activity is very low this year and 2014 will be the lowest since year 2000.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 8% from a year ago.