by Calculated Risk on 2/28/2017 08:11:00 PM

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

• All day, Light vehicle sales for February. The consensus is for light vehicle sales to increase to 17.7 million SAAR in February, from 17.5 million in  January (Seasonally Adjusted Annual Rate).

• At 8:30 AM, Personal Income and Outlays for January. The consensus is for a 0.3% 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 10:00 AM, ISM Manufacturing Index for February. The consensus is for the ISM to be at 56.1, up from 54.7 in December.

• Also at 10:00 AM, Construction Spending for January. The consensus is for a 0.2% increase in construction spending.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 2/28/2017 05:31:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in January was at 0.99%, down from 1.00% in December.  Freddie's rate is down from 1.33% in January 2016.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This is the lowest serious delinquency rate since June 2008.

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

Click on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%.

Maybe the rate will decline another 0.25 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.

by Calculated Risk on 2/28/2017 03:48:00 PM

The FDIC released the Quarterly Banking Profile for Q4 today:

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $43.7 billion in the fourth quarter of 2016, up $3.1 billion (7.7 percent) from a year earlier. The increase in earnings was mainly attributable to an $8.4 billion (7.6 percent) increase in net interest income. Financial results for the fourth quarter of 2016 are included in the FDIC's latest Quarterly Banking Profile released today.

Of the 5,913 insured institutions reporting fourth quarter financial results, 59 percent reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the fourth quarter fell to 8.1 percent from 9.6 percent a year earlier.
...
Deposit Insurance Fund’s Reserve Ratio Rises to 1.20 Percent: The DIF increased $2.5 billion during the fourth quarter to $83.2 billion at the end of December, largely driven by assessment income. The DIF reserve ratio rose from 1.18 percent to 1.20 percent during the quarter. Estimated insured deposits increased 1.4 percent in the fourth quarter. For all of 2016, estimated insured deposits increased 6 percent.
emphasis added

Click on graph for larger image.

The FDIC reported the number of problem banks declined:

“Problem Bank List” Shows Further Improvement: The number of banks on the FDIC’s Problem Bank List fell from 132 to 123 during the fourth quarter. This is the smallest number of problem banks in more than seven years and is down significantly from the peak of 888 in the first quarter of 2011. Total assets of problem banks rose slightly from $24.9 billion to $27.6 billion during the fourth quarter.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $3.98 billion in Q3 2016 to $3.90 billion in Q4. This is the lowest level of REOs since Q1 2007.

This graph shows the nominal dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Since REOs are reported in dollars, and house prices have increased, it is unlikely FDIC institution REOs will get back to the $2.0 to $2.5 billion range back that happened in 2003 to 2005.    FDIC REOs will probably bottom closer to $3 billion.

by Calculated Risk on 2/28/2017 01:14:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.8% year-over-year in December

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 1.4% above the previous bubble peak. However, in real terms, the National index (SA) is still about 14.5% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In December, the index was up 5.8% YoY.

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 $278,000 today adjusted for inflation (38.9%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

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 November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to August 2005 levels, and the CoreLogic index (NSA) is back to September 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 April 2004 levels, the Composite 20 index is back to December 2003, and the CoreLogic index back to March 2004.

In real terms, house prices are back to late 2003 / early 2004 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 October 2003 levels, the Composite 20 index is back to July 2003 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are back to late 2003 / early 2004  - and the price-to-rent ratio maybe moving a little more sideways now.

by Calculated Risk on 2/28/2017 10:06:00 AM

From the Richmond Fed: Manufacturing Activity Expanded; Capacity Utilization Rose Sharply

Fifth District manufacturing activity expanded in February, as shipments increased and the volume of new orders rose broadly, according to the latest survey by the Federal Reserve Bank of Richmond. Employment gains were more common and longer workweeks prevailed. Wage increases were more widespread. Prices paid for inputs rose more rapidly than in January, and prices received also accelerated. ...
...
Manufacturing activity strengthened in February, pushing the composite index to 17 from the previous reading of 12.
...
The manufacturing employment index increased compared to a month ago, rising two points this month to a reading of 10. The average workweek lengthened, pushing the index to 16 from 5 a month earlier. Average wage increases were also more common in February. That indicator climbed four points to 15. ...
emphasis added

This was the last of the regional Fed surveys for February.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through February), and five Fed surveys are averaged (blue, through February) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

It seems likely the ISM manufacturing index will show stronger expansion in February (to be released tomorrow), and the consensus is for a reading of 56.1.

by Calculated Risk on 2/28/2017 09:18:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December 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 National Index Sets 30-Month Annual Return High

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.8% annual gain in December, up from 5.6% last month and setting a 30-month high. The 10-City Composite posted a 4.9% annual increase, up from 4.4% the previous month. The 20-City Composite reported a year-over-year gain of 5.6%, up from 5.2% in November.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over the 11 months leading up to December. Seattle led the way with a 10.8% year-over-year price increase in December, followed by Portland with 10.0%, and Denver with an 8.9% increase. Twelve cities reported greater price increases in the year ending December 2016 versus the year ending November 2016.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in December. Both the 10-City Composite and the 20-City Composite indices posted 0.3% increases. After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase, while the 10-City and 20-City Composites each reported 0.9% month-over-month increases. Eighteen of 20 cities reported increases in December before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.
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 off 8.4% from the peak, and up 0.9% in December (SA).

The Composite 20 index is off 6.1% from the peak, and up 0.9% (SA) in December.

The National index is 1.4% above the bubble peak (SA), and up 0.8% (SA) in December.  The National index is up 37.1% 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 4.9% compared to December 2015.

The Composite 20 SA is up 5.6% year-over-year.

The National index SA is up 5.8% year-over-year.

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

I'll have more later.

by Calculated Risk on 2/28/2017 08:34:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter 2016 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was also 1.9 percent. With the second estimate for the fourth quarter, the general picture of economic growth remains the same; the increase in personal consumption expenditures was larger and increases in state and local government spending and in nonresidential fixed investment were smaller than previously estimated ...
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 2.3% to 3.0%. (solid PCE). Residential investment was revised down from 10.2% to +9.6%. This was below the consensus forecast.

by Calculated Risk on 2/27/2017 09:30:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Higher

Mortgage rates moved slightly higher after a strong run to the lowest levels of the year as of last Friday. ... For now, rates are still much closer to 2017's lows. Most borrowers would be quoted the same rate as last Friday, but with slightly higher upfront costs today. The average lender continues to quote 4.125% on top tier scenarios, though there are a few lenders at 4.0% and 4.25%.
emphasis added

Tuesday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2016 (second estimate). The consensus is that real GDP increased 2.1% annualized in Q4, up from the advance estimate of 1.9%.

• At 9:00 AM, S&P/Case-Shiller House Price Index for December. Although this is the December report, it is really a 3 month average of October, November and December prices. The consensus is for a 5.4% year-over-year increase in the Comp 20 index for December.

• At 9:45 AM, Chicago Purchasing Managers Index for February. The consensus is for a reading of 52.9, up from 50.3 in January.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for February. This is the last of the regional Fed surveys for February.

by Calculated Risk on 2/27/2017 04:45:00 PM

A few excerpts from a Merrill Lynch research note: The undocumented economy

Let’s consider three scenarios:

1.Improved border security and more aggressive deportations that lower the number of undocumented workers by 200,000 per year. This could be achieved by increasing annual deportations from about 400,000 to 500,000 and stopping 100,000 more people per year at the border.

2. Cut the number of undocumented workers in half over a four year period through tougher enforcement.

3. Effectively eliminate all undocumented workers over a four year period.
...
In the first scenario the economic impacts are likely to be very small. ...  The story is very different under the second and third scenarios. Undocumented immigrants tend to specialize in certain kinds of jobs. Hence cutting the labor force in these areas could hurt the productivity of complementary workers causing indirect loses beyond the direct labor force reduction. ... With full deportation an outright recession seems plausible, as output would be disrupted and as the Fed may be unwilling to act because a labor shortage would mean a surge in wage and price inflation.
...
Undocumented immigrants are a relatively small part of the overall labor force [and] our baseline is relatively benign, but we see significant downside risks to that baseline.
emphasis added

by Calculated Risk on 2/27/2017 11:11:00 AM

From the Dallas Fed: Growth in Texas Manufacturing Activity Continues

Texas factory activity increased for the eighth consecutive month in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose five points to 16.7, suggesting output growth picked up pace this month. ...
...
The general business activity index returned to positive territory in October 2016 and has pushed further positive every month since, reaching 24.5 this month.
...
Labor market measures indicated employment gains and longer workweeks. The employment index posted a second positive reading in a row—something that hasn’t happened since the end of 2015—and edged up from 6.1 to 9.6. ...
emphasis added

The Richmond Fed manufacturing survey for February will be released tomorrow. Based on the surveys released so far, it appears manufacturing was very strong in February.