by Calculated Risk on 11/26/2014 08:21:00 PM

Fannie Mae reported yesterday that the Single-Family Serious Delinquency rate declined in October to 1.92% from 1.96% in September. The serious delinquency rate is down from 2.48% in October 2013, and this is the lowest level since October 2008.

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

Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 1.91% from 1.96% in September. Freddie's rate is down from 2.48% in September 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Click on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.56 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in 2016 - although the rate of decline has slowed recently.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be close to normal in late 2016.

by Calculated Risk on 11/26/2014 03:47:00 PM

The Case-Shiller house price indexes for September were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: Oct. 2014 Case-Shiller Prediction: Expect the Slowdown to Continue

The September S&P/Case-Shiller (SPCS) data out [yesterday] showed more slowing in the housing market, with annual growth in the 20-city index falling 0.7 percentage points from August’s pace to 4.9 percent in September. This is the first time annual appreciation for the 20-city index has been below 5 percent since October 2012. The national index was up 4.8 percent on an annual basis in September.

Our current forecast for October SPCS data indicates further slowing, with the annual increase in the 20-City Composite Home Price Index falling to 4.3 percent.

The non-seasonally adjusted (NSA) 20-City index was flat from August to September, and we expect it to decrease 0.4 percent in October. We also expect a monthly decline for the 10-City Composite Index, which is projected to fall 0.4 percent from September to October (NSA).

All forecasts are shown in the table below. These forecasts are based on the September SPCS data release and the October 2014 Zillow Home Value Index (ZHVI), released Nov. 20. Officially, the SPCS Composite Home Price Indices for October will not be released until Tuesday, Dec. 30.

So the Case-Shiller index will probably show a lower year-over-year gain in October than in September (4.9% year-over-year for the Composite 20 in September, 4.8% year-over-year for the National Index).

Zillow October 2014 Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	October 2013	180.29	178.20	165.90	164.01
Case-Shiller (last month)	September 2014	188.68	184.84	173.72	170.19
Zillow Forecast	YoY	4.2%	4.2%	4.3%	4.3%
	MoM	-0.4%	0.2%	-0.4%	0.2%
Zillow Forecasts1		187.9	185.4	173.0	170.8
Current Post Bubble Low		146.45	149.87	134.07	137.05
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		28.3%	23.7%	29.1%	24.6%
Bubble Peak		226.29	226.87	206.52	206.61
Date of Bubble Peak		Jun-06	Apr-06	Jul-06	Apr-06
Below Bubble Peak		17.0%	18.3%	16.2%	17.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 11/26/2014 12:24:00 PM

The new home sales report for October was below expectations at 458 thousand on a seasonally adjusted annual rate basis (SAAR).

Also, sales for the previous three months (July, August and September), were revised down.

Sales this year are significantly below expectations, however, based on the low level of sales, more lots coming available, and demographics, it seems likely sales will continue to increase over the next several years.

Earlier: New Home Sales at 458,000 Annual Rate in October

The Census Bureau reported that new home sales this year, through October, were 371,000, Not seasonally adjusted (NSA). That is up 1% from 367,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year.

Sales were up 1.8% year-over-year in October.

Click on graph for larger image.

This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate).

The year-over-year gain will be small in Q4, but I expect sales to be up for the quarter and for the year.

And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through September 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to mostly move sideways (distressed sales will continue to decline and be somewhat offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 11/26/2014 10:00:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 458 thousand.

September sales were revised down from 467 thousand to 455 thousand, and August sales were revised down from 466 thousand to 453 thousand.

"Sales of new single-family houses in October 2014 were at a seasonally adjusted annual rate of 458,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent above the revised September rate of 455,000 and is 1.8 percent above the October 2013 estimate of 450,000."

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply increased in October to 5.6 months from 5.5 months in September.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

"The seasonally adjusted estimate of new houses for sale at the end of October was 212,000. This represents a supply of 5.6 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In October 2014 (red column), 37 thousand new homes were sold (NSA). Last year 36 thousand homes were sold in October.  This was the best October since 2007.

The high for October was 105 thousand in 2005, and the low for October was 23 thousand in 2010.

This was below expectations of 470,000 sales in October, and there were downward revisions to sales in July, August and September.

I'll have more later today.

by Calculated Risk on 11/26/2014 08:48:00 AM

The BEA released the Personal Income and Outlays report for October:

Personal income increased $32.9 billion, or 0.2 percent ... in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $27.3 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in October, in contrast to a decrease of less than 0.1 percent in September. ... The price index for PCE increased 0.1 percent in October, the same increase as in September. The PCE price index, excluding food and energy, increased 0.2 percent in October, compared with an increase of 0.1 percent in September.

The following graph shows real Personal Consumption Expenditures (PCE) through October 2014 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was lower than expected,  Also the increase in PCE was below the 0.3% consensus, however that consensus was prior to the upward revisions to August and September PCE in the GDP report.  It looks like PCE is off to a decent start to Q4.

On inflation: The PCE price index increased 1.4 percent year-over-year, and at a 0.7% annualized rate in October. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in October, and at a 2.2% annualized rate in October.

by Calculated Risk on 11/26/2014 08:30:00 AM

The DOL reported:

In the week ending November 22, the advance figure for seasonally adjusted initial claims was 313,000, an increase of 21,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 291,000 to 292,000. The 4-week moving average was 294,000, an increase of 6,250 from the previous week's revised average. The previous week's average was revised up by 250 from 287,500 to 287,750.

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

The previous week was revised up to 292,000

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 increased to 294,000.

This was higher than the consensus forecast of 288,000, but the level suggests few layoffs.

by Calculated Risk on 11/25/2014 08:12:00 PM

Earlier the FDIC released the Quarterly Banking Profile for Q3 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $38.7 billion in the third quarter of 2014, up $2.6 billion (7.3 percent) from earnings of $36.1 billion the industry reported a year earlier. The increase in earnings was mainly attributable to a $7.8 billion (4.8 percent) increase in net operating revenue (the sum of net interest income and total noninterest income), the biggest since the fourth quarter of 2009. ...

The number of "problem banks" fell for the 14th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 354 to 329 during the quarter, the lowest since the 305 in the first quarter of 2009. The number of "problem" banks now is 63 percent below the post-crisis high of 888 at the end of the first quarter of 2011. Two FDIC-insured institutions failed in the third quarter, compared to six in the third quarter of 2013.

The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance (the net worth of the Fund) rose to a record $54.3 billion as of September 30 from $51.1 billion at the end of June. The Fund balance increased primarily due to assessment income, recoveries from litigation settlements, and receivership asset recoveries that exceeded estimates.

Wednesday:
• At 7:00 AM ET, (This might be delayed due to the holiday) the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 288 thousand from 291 thousand last week.

• Also at 8:30 AM, Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.5% decrease in durable goods orders.

• Also at 8:30 AM, Personal Income and Outlays for October. The consensus is for a 0.4% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 90.0, up from the preliminary reading of 89.4, and up from the October reading of 86.9.

• At 10:00 AM, the New Home Sales for October from the Census Bureau. The consensus is for an increase in sales to 470 thousand Seasonally Adjusted Annual Rate (SAAR) in October from 467 thousand in September.

• Also at 10:00 AM, Pending Home Sales Index for October. The consensus is for a 0.6% increase in the index.

by Calculated Risk on 11/25/2014 04:13:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 1.91% from 1.96% in September. Freddie's rate is down from 2.48% in October 2013, and this is the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for October in a few days.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.57 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).

by Calculated Risk on 11/25/2014 01:11:00 PM

The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.9% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.8% - also the slowest YoY increase since October 2012.

Looking forward, I expect the indexes to slow further on a YoY basis, however: 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us.

This slowdown was expected by several key analysts, and I think it is good news.  As Zillow chief economist Stan Humphries said today:

“The days of double-digit home value appreciation continue to rapidly fade away as more inventory comes on line, and the market is becoming more balanced between buyers and sellers,” said Zillow Chief Economist Dr. Stan Humphries. “Like a perfectly prepared Thanksgiving turkey, it’s important for things to cool off a bit in the housing market, because too-fast appreciation risks burning both buyers and sellers. In this more sedate environment, buyers can take more time to find the right deal for them, and sellers can rest assured they won’t be left without a seat at the table when they turn around and become buyers. This slowdown is a critical step on the road back to a normal housing market, and as we approach the end of 2014, the housing market has plenty to be thankful for.”
emphasis added

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $278,600 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 10.4% below the bubble peak.   However, in real terms, the National index is still about 25% below the bubble peak.

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to March 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to October 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to September 2002 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to March 2003.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2003 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to May 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels - and maybe moving a little sideways now.

by Calculated Risk on 11/25/2014 11:00:00 AM

Here is the Q3 report: Household Debt and Credit Report. From the NY Fed:

Aggregate household debt balances increased slightly in the 3rd quarter of 2014. As of September 30, 2014, total household indebtedness was $11.71 trillion, up by 0.7% from its level in the second quarter of 2014, an increase of $78 billion. Overall household debt still remains 7.6% below its 2008Q3 peak of $12.68 trillion.

Mortgages, the largest component of household debt, edged up by 0.4%. Mortgage balances shown on consumer credit reports stand at $8.13 trillion, up by $35 billion from their level in the second quarter. Balances on home equity lines of credit (HELOC) dropped by $9 billion (1.7%) in the third quarter and now stand at $512 billion. Non-housing debt balances increased by 1.7 %, boosted by gains in all categories. Auto loan balances increased by $29 billion; student loan balances increased by $8 billion; credit card balances increased by $11 billion.

New extensions increased for auto loans and credit cards, but were roughly flat for both mortgages and HELOCs. There were $105 billion in new auto loan originations, the highest volume since 2005Q3. The aggregate credit card limit continued to increase, and is up by 0.9% from the previous quarter. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinanced mortgages, increased slightly to $337 billion but remain low by historical standards. HELOC limits were flat, down by 0.4%.

Overall delinquency rates were flat overall in 2014Q3 As of September 30, 6.3% of outstanding debt was in some stage of delinquency, compared with 6.2% in 2014Q2. About $732 billion of debt is delinquent, with $506 billion seriously delinquent (at least 90 days late or “severely derogatory”).
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased slightly in Q3.  Household debt peaked in 2008, and bottomed in Q2 2013.

The recent increase in debt suggests households (in the aggregate)  deleveraging is over.  Also from the NY Fed: Household Debt Balances Increase as Deleveraging Period Concludes

Total cash flow from mortgage debt and nonmortgage debt combined (black dotted line) has turned slightly positive during the past four quarters, ending a five-year period of negative values, suggesting that, by this measure, the deleveraging process has ended; households have begun to use credit to supplement their cash flow again.

The second graph shows the percent of debt in delinquency. The percent of delinquent debt is generally declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). 

The overall delinquency rate increased slightly to 6.3% in Q3, from 6.2% in Q2.   However the slight increase was in the less than 30 day category, and is not a concern.

The Severely Derogatory (red) rate has fallen to 2.18%, the lowest since Q1 2008.

The 120+ days late (orange) rate has declined to 1.82%, the lowest since Q2 2008.

Short term delinquencies are back to normal levels.

Here is the press release from the NY Fed: New York Fed Report Shows Household Debt Edges Higher

There are a number of credit graphs at the NY Fed site.