by Calculated Risk on 1/22/2016 03:11:00 PM

From Black Knight: Black Knight Financial Services’ “First Look” at December 2015 Mortgage Data, 2015 Ends with 22 Percent Improvement in Foreclosure Inventory, 15 Percent Decline in Delinquencies

According to Black Knight's First Look report for December, the percent of loans delinquent decreased 3% in December compared to November, and declined 15% year-over-year.

The percent of loans in the foreclosure process declined 1% in December and were down 22% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.78% in December, down from 4.92% in November.

The percent of loans in the foreclosure process declined in December to 1.37%.

The number of delinquent properties, but not in foreclosure, is down 425,000 properties year-over-year, and the number of properties in the foreclosure process is down 192,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for December in early February.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Dec 2015	Nov 2015	Dec 2014	Dec 2013
Delinquent	4.78%	4.92%	5.62%	6.45%
In Foreclosure	1.37%	1.38%	1.75%	2.52%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	2,408,000	2,491,000	2,833,000	3,252,000
Number of properties in foreclosure pre-sale inventory:	689,000	698,000	881,000	1,269,000
Total Properties	3,097,000	3,189,000	3,715,000	4,533,000

by Calculated Risk on 1/22/2016 12:21:00 PM

Everyone expected a rebound in existing home sales in December. The key reason for the decline in November was the new TILA-RESPA Integrated Disclosure (TRID). In early October, this new disclosure rule pushed down mortgage applications sharply, however applications bounced back - and so did home sales in December. No surprise.  Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974.

However, most analysts underestimated the strength of the rebound. (Not CR readers who expected an above consensus report).

As I've noted before, there are some economic reasons to expect some softness in existing home sales in 2016. Low inventory is probably holding down sales in many areas, and there will be weakness in some oil producing areas (see: Houston has a problem).

Earlier: Existing Home Sales increased in December to 5.46 million SAAR

I expected some increase in inventory in 2015, but that didn't happened.  Inventory is still very low and falling year-over-year (down 3.8% year-over-year in December). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

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

Click on graph for larger image.

Sales NSA in December (red column) were the highest since December 2006 (NSA).

by Calculated Risk on 1/22/2016 10:11:00 AM

From the NAR: Existing-Home Sales Surge Back in December

Existing-home sales snapped back solidly in December as more buyers reached the market before the end of the year, and the delayed closings resulting from the rollout of the Know Before You Owe initiative pushed a portion of November's would-be transactions into last month's figure, according to the National Association of Realtors®. ...

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, ascended 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November. After last month's turnaround (the largest monthly increase ever recorded), sales are now 7.7 percent above a year ago. ...

Total housing inventory at the end of December dropped 12.3 percent to 1.79 million existing homes available for sale, and is now 3.8 percent lower than a year ago (1.86 million). Unsold inventory is at a 3.9-month supply at the current sales pace, down from 5.1 months in November and the lowest since January 2005 (3.6 months).

Click on graph for larger image.

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

Sales in December (5.46 million SAAR) were 14.7% higher than last month, and were 7.7% above the December 2014 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.79 million in December from 2.04 million in November.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third 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 3.8% year-over-year in December compared to December 2014.  

Months of supply was at 3.9 months in December.

This was above consensus expectations of sales of 5.19 million (but not a surprise for CR readers). For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

by Calculated Risk on 1/22/2016 08:36:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth below average in December

The Chicago Fed National Activity Index (CFNAI) moved up to –0.22 in December from –0.36 in November. Two of the four broad categories of indicators that make up the index increased from November, but three of the four categories made negative contributions to the index in December.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.24 in December from –0.19 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was somewhat below the historical trend in December (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 1/21/2016 05:27:00 PM

Housing economist Tom Lawler estimates the NAR will report December sales of 5.36 million on a seasonally adjusted annual rate (SAAR) basis, up from 4.76 million SAAR in November.

Based on Lawler's estimate, I'd take the "over" tomorrow.  Note:  Lawler is not always right on, but he is usually pretty close.  See this post for a review of Lawler's track record.

Friday:
• At 8:30 AM, the Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.19 million SAAR, up from 4.76 million in November.

by Calculated Risk on 1/21/2016 03:20:00 PM

The following is an update to a few graphs and analysis that I started posting in 2005.  In 2005 I was bearish on residential investment, and I used these graphs to argue that the then coming housing bust would lead the economy into a recession. Now this analysis is suggesting more growth ... (note: Some of this discussion is updated from previous posts).

Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but the key is to watch private domestic investment, especially residential investment. Even though private investment usually only accounts for around 15% of GDP, the swings for private investment are significantly larger than for PCE during the business cycle, so private investment has an outsized impact on GDP at transitions in the business cycle.

The first graph shows the real annualized change in GDP and private investment since 1976 through Q3 2016 (this is a 3 quarter centered average to smooth the graph).

GDP has fairly small annualized changes compared to the huge swings in investment, especially during and just following a recession. This is why investment is one of the keys to the business cycle.

Click on graph for larger image.

Note that during the recent recession, the largest decline for GDP was in Q4 2008 (a 8.2% annualized rate of decline).  On a three quarter center averaged basis (as presented on graph), the largest decline was 5.2% annualized.

However the largest decline for private investment was a 39% annualized rate!  On a three quarter average basis (on graph), private investment declined at a 31% annualized rate.

The second graph shows the contribution to GDP from the five categories of private investment: residential investment, equipment and software, nonresidential structures, intellectual property and "Change in private inventories". Note: this is a 3 quarter centered average of the contribution to GDP.

This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment lags the business cycle. Red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, and blue.

The dashed grey line is the "Change in private inventories". This category has significant ups and downs, but is always negative during a recession, and provides a boost to GDP just after a recession. 

The key leading sector - residential investment - lagged the recent recovery because of the huge overhang of existing inventory. Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish.

Residential investment turned positive in 2011, and made a positive contribution to GDP through 2015.

What does this mean for the business cycle? Usually residential investment would turn down before a recession, and that isn't happening right now. Instead residential investment is starting to increase.

The third graph shows residential investment as a percent of GDP. Residential investment as a percent of GDP is still very low, and it seems likely that residential investment as a percent of GDP will increase further in 2016.

Nothing is perfect, but residential investment suggests further growth. Add in the improvement in household balance sheets, some contribution from Federal, state and local governments, and a further increase in non-residential structures in 2016 (ex-energy) - and the economy should continue to grow.

by Calculated Risk on 1/21/2016 09:01:00 AM

From the Philly Fed: January 2016 Manufacturing Business Outlook Survey

Manufacturing conditions in the region contracted modestly this month, according to firms responding to the January Manufacturing Business Outlook Survey. The indicator for general activity remained negative this month; however, it rebounded from a lower reading in December.
...
The diffusion index for current activity increased from a revised reading of -10.2 in December to -3.5 and has now been negative for five consecutive months ...

The survey’s labor market indicators suggest weaker employment. The employment index decreased 4 points, from 2.2 to -1.9.
emphasis added

This was close to the consensus forecast of a reading of -4.0 for January.

Click on graph for larger image.

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

The average of the Empire State and Philly Fed surveys decreased in January, and was solidly negative.  This suggests another weak reading for the ISM survey.

by Calculated Risk on 1/21/2016 08:34:00 AM

The DOL reported:

In the week ending January 16, the advance figure for seasonally adjusted initial claims was 293,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 284,000 to 283,000. The 4-week moving average was 285,000, an increase of 6,500 from the previous week's revised average. The previous week's average was revised down by 250 from 278,750 to 278,500.

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

The previous week was revised down to 283,000.

The following graph shows the 4-week moving average of weekly claims since 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 285,000.

This was above the consensus forecast of 275,000. Although initial claims have increased recently, this is still a very low level and the 4-week average suggests few layoffs.

by Calculated Risk on 1/20/2016 06:58:00 PM

From Matthew Graham at Mortgage News Daily: Rates Head Back Toward Long Term Lows

Mortgage rates fell today, bringing them back in line with the lowest levels in more than 2 months and very near the best levels since late April 2015. ... The average lender is easily back into the "high 3's" when it comes to conventional 30yr fixed quotes for top tier scenarios. The only question is whether that means 3.75% or 3.875%. With today's improvements, quite a few lenders moved back down to to 3.75%. They don't necessarily represent a majority just yet, but it's getting to be a closer call.

Thursday:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for 275 thousand initial claims, down from 284 thousand the previous week.

• At 8:30 AM, the Philly Fed manufacturing survey for January. The consensus is for a reading of -4.0, up from -5.9.

by Calculated Risk on 1/20/2016 03:11:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture Billings Index Ends Year on Positive Note

There were a few occasions where demand for design services decreased from a month-to-month basis in 2015, but the Architecture Billings Index (ABI) concluded the year in positive terrain and was so in eight of the twelve months of the year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 50.9, up from the mark of 49.3 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.2, up from a reading of 58.6 the previous month.

“As has been the case for the past several years, there continues to be a mix of business conditions that architecture firms are experiencing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Overall, however, ABI scores for 2015 averaged just below the strong showing in 2014, which points to another healthy year for construction this year.”
...
• Regional averages: West (53.7), South (53.3), Northeast (46.7), Midwest (46.1)

• Sector index breakdown: multi-family residential (52.9), institutional (52.2), commercial / industrial (47.3), mixed practice (46.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in December, down from 49.3 in November. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

The multi-family residential market was negative for most of the year - suggesting a slowdown or less growth for apartments - but has been positive for the last three months.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 8 of the last 12 months, suggesting a further increase in CRE investment in 2016.