by Calculated Risk on 1/08/2018 03:32:00 PM

Black Knight released their Mortgage Monitor report for November today. According to Black Knight, 4.55% of mortgages were delinquent in November, up from 4.46% in November 2016. The increase was primarily due to the hurricanes. Black Knight also reported that 0.66% of mortgages were in the foreclosure process, down from 0.98% a year ago.

This gives a total of 5.21% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Tappable Equity at All-Time High, But Tax Code Changes Could Impact Homeowners’ Utilization

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of November 2017. This month, Black Knight finds that tappable equity – the amount of equity available for homeowners to borrow against before reaching a maximum 80 percent total loan-to-value (LTV) ratio – is at an all-time high. However, as Black Knight Data & Analytics Executive Vice President Ben Graboske explained, recent changes to the U.S. tax code may have implications for homeowners’ utilization of that equity.

“As of the end of Q3 2017, 42 million homeowners with a mortgage now have an aggregate of nearly $5.4 trillion in equity available to borrow against,” said Graboske. “That is an all-time high, and up more than $3 trillion since the bottom of the market in 2012. Over 80 percent of all mortgage holders now have available equity to tap, whether via first-lien cash-out refinances or home equity lines of credit (HELOCs). We’ve noted in the past that as interest rates rise from historic lows, HELOCs represented an increasingly attractive option for these homeowners to access their available equity without relinquishing interest rates below today’s prevailing rate on their first-lien mortgages. However, with the recently passed tax reform package, interest on these lines of credit will no longer be deductible, which increases the post-tax expense of HELOCs for those who itemize. While there are obviously multiple factors to consider when identifying which method of equity extraction makes more financial sense for a given borrower, in many cases, for those with high unpaid principal balances who are taking out lower line amounts, the math still favors HELOCs. However – assuming interest on cash-out refinances remains deductible – for low-to-moderate UPB borrowers taking out larger amounts of equity, the post-tax math for those who will still itemize under the increased standard deduction may now favor cash-out refinances instead, even if the result is a slight increase to first-lien interest rates.

“As rates continue to rise and the cost associated with increasing the rate on an entire first-lien balance rises as well, the benefit pendulum will likely swing back toward HELOCs. Even so, the change could certainly impact HELOC lending volumes and loan amounts in the coming months and years. To a certain degree, the same question holds true for cash-out refinances, since tax debt for homeowners who will no longer itemize becomes generally more expensive without mortgage interest deduction in the equation. These refinances will likely be an attractive source of secured debt in the future, but increased post-tax costs may have a negative impact on originations. That said, it still remains to be seen whether and to what extent tax costs will impact borrower decisions in terms of either HELOCs or cash-out refinances. At this point, only time will tell.”

The increase in equity, driven by rising home prices, has also continued to shrink the population of underwater borrowers who owe more on their mortgages than their homes are worth. The number of underwater borrowers declined by 800,000 over the first nine months of 2017, a 37 percent decline in negative equity since the start of the year. Only 2.7 percent of homeowners with a mortgage (approximately 1.36 million borrowers) now owe more than their home is worth, the lowest such rate since 2006. Though still elevated from pre-recession levels, the negative equity rate continues to normalize. Even so, home prices in large portions of the country remain below pre-recession peaks. While 36 states and 70 percent of Core Based Statistical Areas (CBSAs) have now surpassed pre-recession home price peaks, 43 of the nation’s 100 largest markets still lag behind.
emphasis added

Click on graph for larger image.

This graphic from Black Knight shows the number of homeowners with negative equity over time.

From Black Knight:

• The number of underwater borrowers declined by 800K over the first nine months of 2017, a 37 percent decline since the start of the year

• Only 2.7 percent of homeowners with a mortgage (1.36M) now owe more on their mortgages than their homes are worth, the lowest such rate since 2006

• Though the national negative equity rate remains elevated from pre-recession levels, it is certainly normalizing

There is much more in the mortgage monitor.

by Calculated Risk on 1/08/2018 12:34:00 PM

Update through December: The prime working age population peaked in 2007, and bottomed at the end of 2012. As of December 2017, according to the BLS, there were still fewer people in the 25 to 54 age group than in 2007.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through December 2017.

Note: This is population, not work force.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s.

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The good news is the prime working age group should start growing at 0.5% per year - and this should boost economic activity.

Note: Demographics impact the unemployment rate and also appear to impact inflation.  That is why I look back to the mid-60s - when the prime age population was growing slowly - to compare somewhat to today.  In the '60s, the unemployment rate bottomed at 3.4% (we could see something close to that again), and inflation was below 2% for the first half of the decade.  The large cohort currently moving into the prime working age is larger than the baby boom in absolute numbers, but not close as a percentage of the population.   So any demographic impact on the unemployment rate and inflation going forward should be much less than in the '70s.

by Calculated Risk on 1/08/2018 10:06:00 AM

Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs - and prices are once again near the bubble highs.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through November 2017 (via NAHB), and 2) CME framing futures.

Prices in early 2018 are up solidly year-over-year and might exceed the housing bubble highs in the Spring of 2018.  Note: CME prices hit an all time high briefly in November.

Click on graph for larger image in graph gallery.

Right now Random Lengths prices are up 22% from a year ago, and CME futures are up about 46% year-over-year.

There is a seasonal pattern for lumber prices. Prices frequently peak around May, and bottom around October or November - although there is quite a bit of seasonal variability.

It looks like we will see record prices this year.

by Calculated Risk on 1/07/2018 08:00:00 PM

Weekend:
• Schedule for Week of Jan 7, 2018

Monday:
• 3:00 PM ET, Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $18.0 billion in November.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 2, and DOW futures are up 67 (fair value).

Oil prices were up over the last week with WTI futures at $61.57 per barrel and Brent at $67.72 per barrel.  A year ago, WTI was at $54, and Brent was at $56 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.49 per gallon. A year ago prices were at $2.38 per gallon - so gasoline prices are up 11 cents per gallon year-over-year.

by Calculated Risk on 1/07/2018 11:32:00 AM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Jan 5, 2017:

• Total US oil rigs were down 5 to 742 this week

• Horizontal oil rigs declined again, -2 to 650

• The reticence of operators to add rigs in the face of surging oil prices is remarkable. It suggests we are seeing a second inflection point with even greater restraint from operators. (The first inflection point for this cycle occurred in July.)br />
• Oil price bears will find no comfort in this report. Expect oil prices to continue to rise until we see life in the horizontal rig count.
...
• Incredible price action again this week, with WTI breaching the $62 threshold, and the Brent spread holding around $6.50.

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 1/06/2018 08:01:00 AM

The key economic reports this week are December retail sales and the Consumer Price Index (CPI).

----- Monday, Jan 8th -----
3:00 PM: Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $18.0 billion in November.

----- Tuesday, Jan 2nd -----
6:00 AM ET: NFIB Small Business Optimism Index for December.

10:00 AM ET: Job Openings and Labor Turnover Survey for November from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in October to 5.996 million from 6.177 in September.

The number of job openings (yellow) were up 7.3% year-over-year, and Quits were up 3.3% year-over-year.

----- Wednesday, Jan 3rd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Jan 4th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 250 thousand the previous week.

8:30 AM: The Producer Price Index for December from the BLS. The consensus is a 0.2% increase in PPI, and a 0.2% increase in core PPI.

----- Friday, Jan 5th -----
8:30 AM ET: Retail sales for December will be released.  The consensus is for a 0.5% increase in retail sales.

This graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales, ex-gasoline, increased by 5.0% on a YoY basis in November.

8:30 AM: The Consumer Price Index for December from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 1/05/2018 07:25:00 PM

From Merrill Lynch:

Core capital goods shipments and orders were revised down in November. The trade deficit widened more than expected. These data sliced 0.2pp from 4Q GDP tracking, bringing us down to 2.3%.
emphasis added

From the Altanta Fed: GDPNow

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 2.7 percent on January 5, down from 3.2 percent on January 3.

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 4.0% for 2017:Q4 and 3.4% for 2018:Q1.

CR Note: This is a wide range of forecasts (from 2.3% to 4.0%).

Looking back at the October forecasts for Q3, Merrill was 3.0%, the Atlanta Fed at 2.7% and the NY Fed at 1.5% (the BEA reported 3.0% before revisions).

For Q2, the July forecasts were Merrill at 2.1%, the Atlanta Fed at 2.5%, and the NY Fed at 2.0% (the BEA initially reported 2.6%).

by Calculated Risk on 1/05/2018 05:10:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

Rail traffic ended 2017 on a positive note. Total U.S. rail carloads in December 2017 were up 2.5% (24,606 carloads) over December 2016, their first year-over-year monthly increase in six months, thanks largely to gains in carloads of crushed stone, sand, and gravel; metallic ores; and chemicals. ... For all of 2017, total carloads were up 2.9%, or 381,266 carloads ... Meanwhile, U.S. intermodal traffic was up 5.3% (53,990 units) in December 2017 over December 2016 and up 3.9% (521,121 units) in 2017 over 2016. 2017 was the best year ever for U.S. intermodal volume.

Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Dark blue is 2017.

Rail carloads have been weak over the last decade due to the decline in coal shipments.

U.S. railroads originated 998,168 carloads in December 2017, up 2.5% (24,606 carloads) over December 2016. It’s the first year-over-year monthly increase for total carloads in six months. Total carloads averaged 249,542 per week in December 2017. Since 1988, when our data begin, only 2009, 2014, and 2015 had fewer weekly average carloads in December than December 2017 did. Still, you take what you can get; the carload increase in December was certainly welcome.

The second graph is for intermodal traffic (using intermodal or shipping containers):

2017 was the best year ever for U.S. intermodal. Originations for the year were 14.01 million containers and trailers, up 3.9%, or 521,121 units, over 2016 and up 2.2%, or 301,172 units, over 2015’s previous record of 13.71 million units. In December, intermodal volume was 1.07 million units, up 5.3%, or 53,980 units, over December 2016. In 2017, containers accounted for 91.0% of U.S. intermodal units, down slightly from 2016’s 91.3%. Eleven of the top 12 U.S. intermodal weeks in history were in 2017.

by Calculated Risk on 1/05/2018 02:50:00 PM

Here is another update of tracking employment during Presidential terms.  We frequently use Presidential terms as time markers - we could use Speaker of the House, Fed Chair, or any other marker.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (dark blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (dark red) took office.

There was a recession towards the end of President G.H.W. Bush (light purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

Mr. Trump is in Orange (just eleven months).

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 811,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 396,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased by 20,966,000 under President Clinton (light blue), by 14,717,000 under President Reagan (dark red), 9,041,000 under President Carter (dashed green), 1,510,000 under President G.H.W. Bush (light purple), and 11,756,000 under President Obama (dark blue).

During the first eleven months of Mr. Trump's term, the economy has added 1,809,000 private sector jobs.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).  However the public sector declined significantly while Mr. Obama was in office (down 268,000 jobs).

During the first eleven months of Mr. Trump's term, the economy has added 30,000 public sector jobs.

The third graph shows the progress towards the Trump goal of adding 10 million jobs over the next 4 years.

After eleven months of Mr. Trump's presidency, the economy has added 1,839,000 jobs, about 453,000 behind the projection.

by Calculated Risk on 1/05/2018 12:27:00 PM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $50.5 billion in November, up $1.6 billion from $48.9 billion in October, revised. November exports were $200.2 billion, $4.4 billion more than October exports. November imports were $250.7 billion, $6.0 billion more than October imports.

Click on graph for larger image.

Both exports and imports increased in November.

Exports are 12% above the pre-recession peak and up 8% compared to November 2016; imports are 8% above the pre-recession peak, and up 8% compared to November 2016.

Trade has been picking up.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $50.10 in October, up from $47.26 in November, and up from $40.81 in November 2016.  The petroleum deficit had been declining for years (although the petroleum deficit has been steady for the last few years) this is the major reason the overall deficit has mostly moved sideways since early 2012. 

The trade deficit with China increased to $35.4 billion in November, from $30.5 billion in November 2016.