by Calculated Risk on 9/25/2018 05:12:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in August was 0.73%, down from 0.78% in July. Freddie's rate is down from 0.84% in August 2017.

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

This is the lowest serious delinquency rate for Freddie Mac since January 2008.

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

Click on graph for larger image

The increase in the delinquency rate late last year was due to the hurricanes (These are serious delinquencies, so it took three months late to be counted).  We will probably see another, smaller, bump this year following hurricane Florence.

I expect the delinquency rate to decline to a cycle bottom in the 0.5% to 0.75% range - but this is close to a bottom.

Note: Fannie Mae will report for August soon.

by Calculated Risk on 9/25/2018 02:10:00 PM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through July 2018).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

by Calculated Risk on 9/25/2018 11:18:00 AM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.0% year-over-year in July

It has been over eleven years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 9.9% above the previous bubble peak. However, in real terms, the National index (SA) is still about 9.6% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.7% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 6%. In July, the index was up 6.0% YoY.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller 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 $285,000 today adjusted for inflation (42%).  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, and the monthly Case-Shiller Composite 20 SA (through July) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).



Real House Prices

The second graph shows the same two 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 December 2004 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 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 and Composite 20 House Price Indexes.

This graph shows the price to rent ratio (January 2000 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2004 levels, and the Composite 20 index is back to November 2003 levels.

In real terms, prices are back to mid 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004.

by Calculated Risk on 9/25/2018 10:02:00 AM

From the Richmond Fed: Fifth District Manufacturing Activity Was Robust in September

Fifth District manufacturing activity was robust in September, according to results of the most recent survey from the Federal Reserve Bank of Richmond. The composite index rose from 24 in August to 29 in September, buoyed by increases in shipments and new orders, while the index of the third component, employment, dropped. Survey respondents were optimistic, expecting growth to continue in the next six months.

The employment index fell in September but remained positive, while growth in wages and the average workweek expanded. Manufacturing firms continued to struggle to find employees with the skills they needed, and they expect this difficulty to continue in the coming months.
emphasis added

So far the regional surveys for September have indicated solid growth.

by Calculated Risk on 9/25/2018 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for July ("July" is a 3 month average of May, June and July 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: Home Price Gains Slow According to the S&P CoreLogic Case-Shiller Index

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.0% annual gain in July, down from 6.2% in the previous month. The 10-City Composite annual increase came in at 5.5%, down from 6.0% in the previous month. The 20-City Composite posted a 5.9% year-over-year gain, down from 6.4% in the previous month.

Las Vegas, Seattle and San Francisco continued to report the highest year-over-year gains among the 20 cities. In July, Las Vegas led the way with a 13.7% year-over-year price increase, followed by Seattle with a 12.1% increase and San Francisco with a 10.8% increase. Five of the 20 cities reported greater price increases in the year ending July 2018 versus the year ending June 2018.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.4% in July. The 10-City and 20-City Composites reported increases of 0.2% and 0.3%, respectively. After seasonal adjustment, the National Index recorded a 0.2% month-over-month increase in July. The 10-City Composite remained flat and the 20-City Composite posted a 0.1% month-over-month increase. Eighteen of 20 cities reported increases in June before seasonal adjustment, while 13 of 20 cities reported increases after seasonal adjustment.

“Rising homes prices are beginning to catch up with housing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Year-over-year gains and monthly seasonally adjusted increases both slowed in July for the S&P Corelogic Case-Shiller National Index and the 10 and 20-City Composite indices. The slowing is widespread: 15 of 20 cities saw smaller monthly increases in July 2018 than in July 2017. Sales of existing single family homes have dropped each month for the last six months and are now at the level of July 2016. Housing starts rose in August due to strong gains in multifamily construction. The index of housing affordability has worsened substantially since the start of the year.

“Since home prices bottomed in 2012, 12 of the 20 cities tracked by the S&P Corelogic Case-Shiller indices have reached new highs before adjusting for inflation. The eight that remain underwater include the four cities which led the home price boom: Las Vegas, Miami, Phoenix and Tampa. All are enjoying rising prices, especially Las Vegas which currently has the largest year-over-year increases of all 20 cities. The other cities where prices are still not over their earlier peaks are Washington DC, Chicago, New York and Atlanta."
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 0.9% from the bubble peak, and unchanged in July (SA).

The Composite 20 index is 2.4% above the bubble peak, and up 0.1% (SA) in July.

The National index is 9.9% above the bubble peak (SA), and up 0.2% (SA) in July.  The National index is up 48.6% 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 5.5% compared to July 2017.  The Composite 20 SA is up 5.9% year-over-year.

The National index SA is up 6.0% year-over-year.

Note: According to the data, prices increased in 13 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

by Calculated Risk on 9/24/2018 06:25:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Treading Water Near Long-Term Highs

Mortgage rates are having a bleak September, having risen at least an eighth of a percentage point in all cases and by a quarter of a point in many cases. Depending on the lender and scenario, conventional 30yr fixed rates of 5.0% aren't out of the question although 4.875% remains far more prevalent for borrowers with lots of equity/down-payment and top-tier credit. Either way, that's as high as mortgage rates have been since 2011 for most lenders. [30YR FIXED - 4.75-4.875%]
emphasis added

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for July. The consensus is for a 6.3% year-over-year increase in the Comp 20 index for July.

• At 9:00 AM, FHFA House Price Index for July 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for September.

by Calculated Risk on 9/24/2018 02:36:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was up 2.7% year-over-year (YoY) in July, this the first YoY increase since early 2015.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, Sacramento, and Phoenix (through August) and total existing home inventory as reported by the NAR (also through August).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 22% year-over-year in August (inventory was still very low), and has increased YoY for eleven consecutive months. 

Also note that inventory was up 20% YoY in Las Vegas in August (red), the second consecutive month with a YoY increase.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.  Inventory was up slightly in Houston in August (but the YoY change might be distorted by Hurricane Harvey last year).

Inventory is a key for the housing market, and I am watching inventory for the impact of the new tax law and higher mortgage rates on housing.   I expect national inventory will be up YoY at the end of 2018 (but still be low).

The current slight YoY increase in inventory is nothing like what happened in 2005 and 2006. In 2005 (see red arrow), inventory kept increasing all year, and that was a sign the bubble was ending.

Although I expect inventory to increase YoY in 2018, I expect inventory to follow the normal seasonal pattern (not keep increasing all year).

So this is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble.

Also inventory is still very low.   Consider Sacramento and Las Vegas - two cities with large YoY increases in inventory - the recent increases pushed inventory in Sacramento to 1.9 months supply.   And in Las Vegas, the recent increases pushed up the months-of-supply in Las Vegas to 1.8 months.

by Calculated Risk on 9/24/2018 12:21:00 PM

From Black Knight: Black Knight’s First Look: Strong Summer of Improvement for Mortgage Delinquencies; Industry Bracing for Impact from Hurricane Florence

• Mortgage delinquencies fell again in August and are now down 5.7 percent over the past two months

• This marks the strongest such decline during July-August on record, since before 2000

• Foreclosure starts also eased in August and are now more than 12 percent below last year’s level

• Delinquencies resulting from 2017’s hurricanes continue to decline – just 25,100 remain in the mainland U.S.

• Some 391,000 homeowners with mortgages were located in Hurricane Florence’s evacuation area, with an estimated 283,000 in the 18 North Carolina counties declared disaster areas so far by FEMA

According to Black Knight's First Look report for August, the percent of loans delinquent decreased 2.4% in August compared to July, and decreased 10.4% year-over-year.

The percent of loans in the foreclosure process decreased 4.4% in August and were down 28.2% 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 3.52% in August, down from 3.61% in July.

The percent of loans in the foreclosure process decreased in August to 0.54% (from 0.57% in July).

The number of delinquent properties, but not in foreclosure, is down 185,000 properties year-over-year, and the number of properties in the foreclosure process is down 105,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Aug 2018	July 2018	Aug 2017	Aug 2016
Delinquent	3.52%	3.61%	3.93%	4.24%
In Foreclosure	0.54%	0.57%	0.76%	1.04%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	1,818,000	1,861,000	2,003,000	2,151,000
Number of properties in foreclosure pre-sale inventory:	280,000	293,000	385,000	527,000
Total Properties	2,099,000	2,154,000	2,388,000	2,678,000

by Calculated Risk on 9/24/2018 10:37:00 AM

From the Dallas Fed: Texas Manufacturing Expansion Continues amid Increased Uncertainty

Texas factory activity continued to expand in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped six points to 23.3, indicating output growth continued but at a slower pace than last month.

Other indexes of manufacturing activity also suggested slower expansion in September. The new orders index fell nine points to 14.7, its lowest reading in six months. Similarly, the growth rate of orders index slipped to 11.5, also a six-month low. The capacity utilization index retreated slightly to 21.6, while the shipments index fell five points to 20.8.

Perceptions of broader business conditions remained positive this month, although outlooks were less optimistic and uncertainty increased further. The general business activity index edged down but remained highly elevated at 28.1. The company outlook index held above average but retreated nine points to 18.2, its lowest reading in more than a year. The relatively new index measuring uncertainty regarding companies’ outlooks moved up four points to a new high of 19.9.

Labor market measures suggest employment levels and work hours rose at a slower pace in September. The employment index remained positive but dropped 11 points to 17.7. One-quarter of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index moved down to 12.7.
emphasis added

So far the regional surveys for September have indicated solid growth.

by Calculated Risk on 9/24/2018 08:37:00 AM

From the Chicago Fed: Index Points to Steady Economic Growth in August

The Chicago Fed National Activity Index (CFNAI) was unchanged at +0.18 in August. Three of the four broad categories of indicators that make up the index increased from July, and two of the four categories made positive contributions to the index in August. The index’s three-month moving average, CFNAI-MA3, rose to +0.24 in August from +0.02 in July.
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 slightly above the historical trend in August (using the three-month average).

According to the Chicago Fed:

The index is a weighted average of 85 indicators of growth in 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 monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.