by Calculated Risk on 10/28/2021 11:44:00 AM

Earlier from the BEA: Gross Domestic Product, Third Quarter 2021 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 6.7 percent.
emphasis added

On a Q3-over-Q3 basis, GDP was up 4.9%.

The advance Q2 GDP report, at 2.0% annualized, was below expectations, due to several factors - a sharp decline in Motor vehicles and parts (due to supply constraints), a decline in residential investment, a decline in government expenditures and a negative contribution from trade.

Personal consumption expenditures (PCE) increased at a 1.6% annualized rate in Q3, a much slower pace than the previous two quarters.

The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

Of course - with the sudden economic stop due to COVID-19 - the usual pattern doesn't apply.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) decreased at a 7.7% annual rate in Q3.  Equipment investment decreased at a 3.2% annual rate, and investment in non-residential structures decreased at a 7.3% annual rate (after getting crushed over the previous year)..

The contribution to Q3 GDP from investment in private inventories was 2.07 percentage points.

On a 3 quarter trailing average basis, RI (red) is down slightly, equipment (green) is up, and nonresidential structures (blue) is still down.

I'll post more on the components of non-residential investment once the supplemental data is released.

The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP decreased in Q3.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".  

Investment in non-residential structures declined in Q3 as a percent GDP, but might pickup in early 2022.

by Calculated Risk on 10/28/2021 10:03:00 AM

From the NAR: Pending Home Sales Dip 2.3% in September

Pending home sales dipped in September, retreating slightly following a previous month of growth, according to the National Association of Realtors®. Each of the four major U.S. regions saw contract activity decline month-over-month and year-over-year, with the Northeast weathering the largest yearly drop.

The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, decreased 2.3% to 116.7 in September. Year-over-year, signings decreased 8.0%. An index of 100 is equal to the level of contract activity in 2001.
...
Month-over-month, the Northeast PHSI fell 3.2% to 93.1 in September, an 18.5% decline from a year ago. In the Midwest, the index dropped 3.5% to 111.4 last month, down 5.8% from September 2020.

Pending home sales transactions in the South decreased 1.8% to an index of 139.1 in September, down 5.8% from September 2020. The index in the West declined 1.4% in September to 105.3, down 7.2% from a year prior.
emphasis added

This was below expectations of a 0.5% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in October and November.

by Calculated Risk on 10/28/2021 08:37:00 AM

The DOL reported:

In the week ending October 23, the advance figure for seasonally adjusted initial claims was 281,000, a decrease of 10,000 from the previous week's revised level. This is the lowest level for initial claims since March 14, 2020 when it was 256,000. The previous week's level was revised up by 1,000 from 290,000 to 291,000. The 4-week moving average was 299,250, a decrease of 20,750 from the previous week's revised average. This is the lowest level for this average since March 14, 2020 when it was 225,500. The previous week's average was revised up by 250 from 319,750 to 320,000.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 299,250.

The previous week was revised up.

Regular state continued claims decreased to 2,243,000 (SA) from 2,480,000 (SA) the previous week.

Weekly claims were below consensus forecast.

by Calculated Risk on 10/28/2021 08:33:00 AM

From the BEA: Gross Domestic Product, Third Quarter 2021 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 6.7 percent. ...

The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports. Imports, which are a subtraction in the calculation of GDP, increased.
emphasis added

The advance Q3 GDP report, with 2.0% annualized growth, was below expectations.

I'll have more later ...

by Calculated Risk on 10/27/2021 09:00:00 PM

Goldman Sachs lowered their estimate for Q3 GDP today:

"We lowered our Q3 GDP tracking estimate by ½pp to 2¾% (qoq ar) ahead of tomorrow’s advance release."

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 295 thousand initial claims, up from 290 thousand last week.

• Also at 8:30 AM, Gross Domestic Product, 3rd quarter 2021 (advance estimate). The consensus is that real GDP increased 2.8% annualized in Q3, down from 6.7% in Q2.

• At 10:00 AM, Pending Home Sales Index for September. The consensus is 0.5% increase in the index.

• At 11:00 AM, Kansas City Fed Survey of Manufacturing Activity for October. This is the last of the regional surveys for October.

by Calculated Risk on 10/27/2021 03:47:00 PM

The headline below "No one seems worried ... Just like last time the bubble burst" applies to government officials in the Bush administration and at the Fed (although there was some concern at the Fed, notably from Dr. Janet Yellen). Plenty of private forecasters were expressing concern in 2005 like Dean Baker (for example, see my post Speculation is the Key in early 2005).

Chris Isidore writes at CNN: No one seems worried about a housing bubble. Just like last time the bubble burst.

CR take: There is agreement that underwriting standards are much better today than during the bubble (although I'm a little concern about some non-QM loans, and FHA loans are always a little risky - but nothing like the insanity during the housing bubble).  And also, if prices do fall, there is agreement we won't be cascading price declines like during the housing bust.

Here are some interesting quotes from the article:

"I don't think we'll see prices fall 20% to 30% once again," said Dean Baker, senior economist and co-founder of the Center for Economic Policy and Research. "I don't think there's that kind of story out there." But he cautioned that even a modest rise in interest rates could lead home prices to slide between 5% and 8%.

And from Mark Zandi:

"The housing market is out of whack. It's not sustainable. It is overvalued, stretched and vulnerable as [mortgage] rates rise, and affordability gets crushed," he said. "But I'm not concerned we're going to have a crash."

And from Ivy Zelman:

Zelman doesn't believe there will be another collapse in housing prices like the last time. She said that a rise in the 30-year fixed rate mortgage from the current 2.9% to about 4% could be enough to send prices lower. "A lot of what we're seeing is scary," she said. "We don't know what will happen with interest rates."

by Calculated Risk on 10/27/2021 03:32:00 PM

The CDC is the source for all data.

According to the CDC, on Vaccinations.  Total doses administered: 416,154,424, as of a week ago 409,438,987, or 0.96 million doses per day.

COVID Metrics
	Today	Week Ago	Goal
Percent fully Vaccinated	57.5%	57.1%	≥70.0%1
Fully Vaccinated (millions)	191.0	189.5	≥2321
New Cases per Day3	68,151	77,011	≤5,0002
Hospitalized3	46,206	52,123	≤3,0002
Deaths per Day3	1,098	1,242	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37 day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7 day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

IMPORTANT: For "herd immunity" most experts believe we need 70% to 85% of the total population fully vaccinated (or already had COVID).  Note: COVID will probably stay endemic (at least for some time).

KUDOS to the residents of the 4 states that have achieved 70% of total population fully vaccinated: Vermont at 71.0%, Rhode Island, Connecticut, and Maine at 70.3% .

KUDOS also to the residents of the 12 states and D.C. that have achieved 60% of total population fully vaccinated: Massachusetts at 69.4%, New York, New Jersey, Maryland, New Mexico, New Hampshire, Washington, Oregon, Virginia, District of Columbia,  Colorado, California and Pennsylvania at 60.2%.

The following 20 states have between 50% and 59.9% fully vaccinated: Delaware at 59.7%, Minnesota, Hawaii, Florida, Wisconsin, Nebraska, Iowa, Illinois, Michigan, Kentucky, South Dakota, Texas, Arizona, Kansas, Nevada, Alaska, Utah, North Carolina, Ohio and Montana at 50.2%.

Next up (total population, fully vaccinated according to CDC) are Oklahoma at 49.8%, Indiana at 49.7%, South Carolina at 49.7%, Missouri at 49.5%, Georgia at 48.0%, and Arkansas at 47.7%.

Click on graph for larger image.

This graph shows the daily (columns) and 7 day average (line) of positive tests reported.

by Calculated Risk on 10/27/2021 01:59:00 PM

The National Multifamily Housing Council (NMHC) released their October survey data:

The Market Tightness Index decreased from 96 to 82 – indicating further tightening in market conditions (any reading above 50 indicates tighter conditions).

Most (71 percent) respondents reported tighter market conditions than in the July survey, compared to only 8 percent who reported looser conditions. Twenty percent of respondents felt that conditions were unchanged from 3 months ago.


Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. 

Even though the index declined in October, this indicates market conditions tightened further in October, after being especially weak during the early months of the pandemic.

Here is the question and the responses:

71% of respondents said their markets were tighter (lower vacancy / higher rents) than 3 months ago.

Historically that is a very high percentage.

by Calculated Risk on 10/27/2021 11:03:00 AM

Today, in the Real Estate Newsletter: Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in August; And a look at "Affordability"

Excerpt (there is much more):

This graph uses the year end Case-Shiller house price index - and the nominal median household income through 2020 (from the Census Bureau).  2021 median income is estimated at a 5% annual gain.

By all of the above measures, house prices appear elevated.

Please subscribe!

by Calculated Risk on 10/27/2021 07:00:00 AM

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

Mortgage applications increased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 22, 2021.

... The Refinance Index decreased 2 percent from the previous week and was 26 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 9 percent lower than the same week one year ago.

““Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30 percent and the 15- year fixed rate rose to 2.59 percent – the highest for both in eight months. The increase in rates triggered the fifth straight decrease in refinance activity to the slowest weekly pace since January 2020. Higher rates continue to reduce borrowers’ incentive to refinance,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase applications picked up slightly, and the average loan size rose to its highest level in three weeks, as growth in the higher price segments continues to dominate purchase activity. Both new and existing-home sales last month were at their strongest sales pace since early 2021, but first-time home buyers are accounting for a declining share of activity. Home prices are still growing at a rapid clip, even if monthly growth rates are showing signs of moderation, and this is constraining sales in many markets, and particularly for first-timers.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.30 percent from 3.23 percent, with points decreasing to 0.34 from 0.35 (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.

With relatively low rates, the index remains somewhat elevated - but the recent bump in rates has slowed activity to the lowest level since January 2020.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 9% year-over-year unadjusted.

Note: The year ago comparisons for the unadjusted purchase index are now difficult since purchase activity was strong in the second half of 2020.

Note: Red is a four-week average (blue is weekly).