by Calculated Risk on 11/20/2017 06:38:00 PM

From the Federal Reserve: Janet L. Yellen will step down as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair

Janet L. Yellen submitted her resignation Monday as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair.

Dr. Yellen, 71, was appointed to the Board by President Obama for an unexpired term ending January 31, 2024. Her term as Chair expires on February 3, 2018. She also serves as Chair of the Federal Open Market Committee, the System's principal monetary policymaking body.

Prior to her appointment as Chair, Dr. Yellen served as Vice Chair of the Board of Governors, from October 2010 to February 2014, and as President of the Federal Reserve Bank of San Francisco, from June 2004 to October 2010. She was initially appointed to the Board by President Clinton in August 1994 and served until February 1997, when she resigned to serve as Chair of the President's Council of Economic Advisers, until August 1999.

Dr. Yellen is Professor Emerita at the University of California at Berkeley, where she has been a member of the faculty since 1980. She was born in Brooklyn, New York, in August 1946 and received her undergraduate degree in economics from Brown University in 1967 and her Ph.D. in economics from Yale University in 1971. Dr. Yellen is married and has an adult son.

A copy of her resignation letter is attached.

Tuesday:
• At 8:30 AM ET, Chicago Fed National Activity Index for October. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, up from 5.39 million in August. Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR for October. Take the Over.

• At 6:00 PM, Panel Discussion with Fed Chair Janet Yellen, Moderated discussion with Mervyn King, At the New York University Stern School of Business, New York, New York

by Calculated Risk on 11/20/2017 05:16:00 PM

Note: This is a repeat of a June post with updated statistics and graph.

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 13.5% under Mr. Trump compared to up 37.9% under Mr. Obama for the same number of market days.

by Calculated Risk on 11/20/2017 03:03:00 PM

Update: Here are five questions that people ask me all the time.
1. Are house prices in a bubble?
2. Is a recession imminent (within the next 12 months)?
3. Is the stock market a bubble?
4. Can investors use macro analysis?
5. Will Mr. Trump have a negative impact on the economy?

Three weeks ago I posted five economic questions I'm frequently asked. 

Since then I've discussed:
1) Are house prices in a new bubble?

2) Is a recession imminent (within the next 12 months)?

3) Is the stock market a bubble?

4) Can investors use macro analysis?

The final question I'm frequently asked: Will Mr. Trump have a negative impact on the economy?

First some good news. When Mr. Trump was elected, the cupboard was full. In November 2016, employment had been increasing solidly for several years (and the unemployment low and falling), wages had finally started picking up in 2015 and 2016, demographics were improving (the prime working age population was growing again), and the World economy was starting to pick up.

Luckily for Americans, and for Mr. Trump, there have been limited policy changes this year - and the economy has stayed the positive course.   For example, despite the campaign rhetoric, there has been no significant trade wars and no mass deportations.

Some infrastructure spending would be a positive, but the proposals from the Trump administration would have had minimal impact (and luckily they haven't gone anywhere).  As an aside, the best time for more infrastructure spending would have been in the years immediately following the financial crisis when the unemployment rate was still elevated - but unfortunately those efforts were blocked by Congress.

"Repeal and replace" would have had a negative impact on the economy, but luckily it failed.

The current tax proposals - mostly to cut taxes on high income earners and inherited wealth - might have some short term positive impact on the economy, but these proposals would be neutral or negative in the medium to long term.

There is a push to loosen financial regulations, and that would be a medium to long term negative, but not a concern for a few years.

The biggest concern is what Mr. Trump will do if something needs to be done (a crisis of some sort).   Mr. Trump is reckless, ignorant and irresponsible - and his response in a crisis is unpredictable.   But right now the best course for Americans would be if the Trump administration did nothing, and hopefully the expansion will stay on course.

by Calculated Risk on 11/20/2017 10:22:00 AM

Below is a table showing selected operating statistics for eight large, publicly-traded builders for the quarter ended September 30, 2017.

From housing economist Tom Lawler:

	Net Orders			Settlements			Average Closing Price $ (000s)
Qtr. Ended:	9/17	9/16	% Chg	9/17	9/16	% Chg	9/17	9/16	% Chg
D.R. Horton	10,333	8,744	18.2%	13,165	12,247	7.5%	307	297	3.2%
Pulte Group	5,300	4,775	11.0%	5,151	5,037	2.3%	399	374	6.7%
NVR	4,200	3,477	20.8%	4,158	3,922	6.0%	393	384	2.3%
Cal Atlantic	3,416	3,531	-3.3%	3,380	3,680	-8.2%	448	452	-0.9%
Beazer Homes	1,315	1,346	-2.3%	1,904	1,856	2.6%	350	334	4.6%
Meritage Homes	1,874	1,737	7.9%	1,969	1,800	9.4%	409	409	0.0%
MDC Holdings	1,270	1,296	-2.0%	1,317	1,293	1.9%	444	445	-0.2%
M/I Homes	1,225	1,008	21.5%	1,256	1,148	9.4%	366	365	0.3%
SubTotal	28,933	25,914	11.7%	32,300	30,983	4.3%	364	356	2.1%

by Calculated Risk on 11/20/2017 08:11:00 AM

Last Friday: Housing Starts increased to 1.290 Million Annual Rate in October

The housing starts report released Friday showed starts were up 13.7% in October compared to September, however starts were down 2.9% year-over-year compared to October 2016.

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Click on graph for larger image.

Starts were down 2.9% in October 2017 compared to October 2016 (a difficult comparison), and starts are up only 5.8% year-to-date.

Note that single family starts are up 10.2% year-to-date, and the weakness (as expected) has been in multi-family starts.

My guess was starts would increase around 3% to 7% in 2017.   Looks about right.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years - but has turned down recently.  Completions (red line) have lagged behind - and completions have just passed starts (more deliveries). 

Completions lag starts by about 12 months, so completions will probably turn down in about a year.

As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few more years of increasing single family starts and completions.

by Calculated Risk on 11/19/2017 06:39:00 PM

Weekend:
• Schedule for Week of Nov 19, 2017

Monday:
• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 3, and DOW futures are down 23 (fair value).

Oil prices were down over the last week with WTI futures at $56.55 per barrel and Brent at $62.54 per barrel.  A year ago, WTI was at $46, and Brent was at $46 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.54 per gallon. A year ago prices were at $2.15 per gallon - so gasoline prices are up 39 cents per gallon year-over-year.

by Calculated Risk on 11/19/2017 08:15:00 AM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For several years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In October, total sales were down 4.7% from October 2016, and conventional equity sales were up 0.9% compared to the same month last year.

In October, 1.4% of all resales were distressed sales. This was down from 2.2% last month, and down from 4.4% in October 2016.

The percentage of REOs was at 0.7%, and the percentage of short sales was 0.7%.

Sacramento Realtor Press Release: October marks highest median sales price in 10.5 years

October ended with a 3.2% decrease in sales, down from 1,560inSeptemberto 1,510. Compared with the 1,584 sales of October 2016, the current number is a 4.7% decrease. Equity sales for the month continued to grow, accounting for 98.5% (1,510) of the sales this month. REO/bank-owned and Short Sales made up the difference with 11 sales (.7%) and 11 sales (.7%) for the month, respectively.
...
Active Listing Inventory decreased slightly, decreasing 3.4% from 2,625 to 2,536.The Months of Inventory remained at 1.7 Months. A year ago the Months of inventory was 1.6 and Active Listing Inventory stood at 2,492 listings(-1.8% from current figure).
emphasis added

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 1.8% year-over-year (YoY) in October.  This YoY inventory increase followed 29 consecutive months with a YoY decrease in inventory in Sacramento.

Cash buyers accounted for 13.6% of all sales - this has been generally declining (frequently investors).

Summary: This data suggests a normal market with few distressed sales, and less investor buying - but with limited inventory.  Keep an eye on inventory - this might be a change in trend.

by Calculated Risk on 11/18/2017 08:09:00 AM

The key economic report this week is October existing home sales.

Happy Thanksgiving!

----- Monday, Nov 20th -----
No economic releases scheduled.

----- Tuesday, Nov 21st -----
8:30 AM ET: Chicago Fed National Activity Index for October. This is a composite index of other data.

10:00 AM: Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, up from 5.39 million in August.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR for October.

6:00 PM ET: Panel Discussion with Fed Chair Janet Yellen, Moderated discussion with Mervyn King, At the New York University Stern School of Business, New York, New York

----- Wednesday, Nov 22nd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, down from 249 thousand the previous week.

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

10:00 AM: University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 97.9, up from the preliminary reading 97.8.

2:00 PM: FOMC Minutes, Meeting of October 31- November 1, 2017

----- Thursday, Nov 23rd -----
All US markets will be closed in observance of the Thanksgiving Day Holiday.

----- Friday, Nov 24th -----
The NYSE and the NASDAQ will close early at 1:00 PM ET.

by Calculated Risk on 11/17/2017 08:21:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Nov 17, 2017:

• Rigs counts took a breather this week

• Total US oil rigs were flat, +0 to 738

• Horizontal oil rigs eased back, -1 to 636
...
• On Wednesday, I suggested that excess inventory draws in the US and the Brent-WTI spread likely meant a resumption of upward oil price pressures, and we saw that today, with WTI up $1.35 and the Brent spread holding steady at $6.25

Click on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

by Calculated Risk on 11/17/2017 03:55:00 PM

From housing economist Tom Lawler:

Based on publicly-available state and local realtor/MLS reports from across the country released through today, I predict that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.60 million in October, up 3.9% from September’s preliminary estimate and up 1.3% from last October’s seasonally-adjusted pace. Unadjusted sales should register a higher YOY gain, reflecting this October’s higher business day count compared to last October’s.

On the inventory front, local realtor/MLS data suggest that the NAR’s estimate of the number of existing homes for sale at the end of October will be about 1.88 million, down 1.1% from September’s preliminary estimate and down 6.5% from last October’s estimate.

Finally, realtor/MLS data suggest that the NAR’s estimate of the median existing SF home sales price last month was up 5.8% from last October.

CR Note: Existing home sales for October are scheduled to be released next Tuesday. The consensus is for sales of 5.40 million SAAR. Take the over on Tuesday!