by Calculated Risk on 1/30/2019 08:54:00 PM

The BEA and Census have set some dates for delayed economic releases. For example, New Home sales for November will be released Thursday (the December release is not scheduled yet). There is no release date yet for Q4 GDP or December Personal Income and Outlays.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 217 thousand initial claims, up from 213 thousand the previous week.

• Also at 8:30 AM, POSTPONED Personal Income and Outlays for December. The consensus is for a 0.4% 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 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 62.5, down from 65.4 in December.

• At 10:00 AM, New Home Sales for November from the Census Bureau. The consensus was for 560 thousand SAAR, up from 544 thousand in October.

by Calculated Risk on 1/30/2019 03:42:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in December was 0.69%, down from 0.70% in November. Freddie's rate is down from 1.08% in December 2017.

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

This is the lowest serious delinquency rate for Freddie Mac since December 2007.

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).

I expect the delinquency rate to decline to a cycle bottom in the 0.5% to 0.7% range - but this is close to a bottom.

Note: Fannie Mae will report for December soon.

by Calculated Risk on 1/30/2019 02:01:00 PM

Powell press conference video here.

FOMC Statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
emphasis added

by Calculated Risk on 1/30/2019 11:59:00 AM

The Case-Shiller house price indexes for November were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Aaron Terrazas at Zillow: November Case-Shiller Results and December Forecast: San Francisco Falls Out of Top Three Home-Price Gainers

The U.S. National S&P CoreLogic Case-Shiller Home Price Index — which tracks home prices — rose 5.2 percent in November from a year earlier, below Zillow’s forecast last month.

The S&P CoreLogic Case-Shiller 20-city index climbed 4.7 percent annually in November, while the 10-city index rose 4.3 percent.

Zillow forecasts a steady 5.1 percent annual gain for December (results due Feb. 26).

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be slightly less in December than in November.

by Calculated Risk on 1/30/2019 10:05:00 AM

From the NAR: Pending Home Sales Dip 2.2 Percent in December

Pending home sales declined as a whole in December, but for the second straight month the Western region experienced a slight increase, according to the National Association of Realtors®.

he Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.2 percent to 99.0 in December, down from 101.2 in November. Additionally, year-over-year contract signings fell 9.8 percent, making this the twelfth straight month of annual decreases.
...
The PHSI in the Northeast rose 2.0 percent to 93.2 in December, and is now 2.5 percent below a year ago. In the Midwest, the index fell 0.6 percent to 97.5 in December, 7.2 percent lower than December 2017.

Pending home sales in the South fell 5 percent to an index of 109.7 in December, which is 13.5 percent lower than a year ago. The index in the West increased 1.7 percent in December to 88.4 and fell 10.8 percent below a year ago.
emphasis added

This was well below expectations for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

by Calculated Risk on 1/30/2019 08:47:00 AM

From ADP:

Private sector employment increased by 213,000 jobs from December to January according to the January according to the December ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“The labor market has continued its pattern of strong growth with little sign of a slowdown in sight,“ said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “We saw significant growth in nearly all industries, with manufacturing adding the most jobs in more than four years. Midsized businesses continue to lead job creation, however the share of jobs was spread a bit more evenly across all company sizes this month.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market weathered the government shutdown well. Despite the severe disruptions, businesses continued to add aggressively to their payrolls. As long as businesses hire strongly the economic expansion will continue on.”

This was well above the consensus forecast for 167,000 private sector jobs added in the ADP report. 

The BLS report for January will be released Friday, and the consensus is for 158,000 non-farm payroll jobs added in January.

by Calculated Risk on 1/30/2019 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 25, 2019. This week’s results include an adjustment for the Martin Luther King Jr. Day holiday.

... The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 7 percent lower than the same week one year ago.
...
“Mortgage applications for purchase and refinances were lower over the past week, as rates nudged higher,” said Joel Kan, MBA’s Associate Vice President of Industry Surveys and Forecasts. “After two weeks of decreases, the purchase index still remained roughly 6 percent above its long-run average, which is good news with the spring buying and selling season almost underway. Despite ongoing supply and affordability constraints, the healthy job market and underlying demographic fundamentals both point to gradual purchase growth in the coming months.”

Added Kan, “Refinance activity had seen a small resurgence in the past few weeks, but there still remains only a small share of borrowers left to gain from rates at the current levels.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.76 percent from 4.75 percent, with points increasing to 0.47 from 0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Rates would have to fall further for a significant increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 7% year-over-year (this was a holiday week).

by Calculated Risk on 1/29/2019 07:00:00 PM

Note: The BEA and Census will have a new release schedule soon (getting back on track following the government shutdown).

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

• At 8:15 AM, The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 167,000 payroll jobs added in January, down from 271,000 added in December.

• At 8:30 AM, POSTPONED Gross Domestic Product, 4th quarter 2018 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q4, down from 3.4% in Q3.

• At 10:00 AM, Pending Home Sales Index for December. The consensus is for a 0.1% increase in the index.

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 1/29/2019 03:51:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.2% year-over-year in November

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 11.7% above the previous bubble peak. However, in real terms, the National index (SA) is still about 8.6% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.0% below the bubble peak.

The year-over-year increase in prices has slowed to 5.2% nationally, and will probably slow more as inventory picks up.

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 $286,000 today adjusted for inflation (43%).  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 October) 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 January 2005 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 2004/2005 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 late 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004.

by Calculated Risk on 1/29/2019 11:18:00 AM

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 November 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.