by Calculated Risk on 12/15/2021 10:06:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 84, up from 83 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Home Builder Sentiment Strong at Year’s End

Despite inflation concerns and ongoing production bottlenecks, home builder confidence edged higher for the fourth consecutive month on strong consumer demand and limited existing inventory. Builder sentiment in the market for newly built single-family homes moved one point higher to 84 in December, according to the NAHB/Wells Fargo Housing Market Index (HMI) released today. This ties the highest reading of the year that was posted in February.

“While demand remains strong, finding workers, predicting pricing and dealing with material delays remains a challenge,” said NAHB Chairman Chuck Fowke. “Policymakers need to work on supply chain improvements and controlling costly inflation. Addressing lumber tariffs would be a good place to start.”

“The most pressing issue for the housing sector remains lack of inventory,” said NAHB Chief Economist Robert Dietz. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.”
...
The HMI index gauging current sales conditions rose one point to 90 and the gauge charting traffic of prospective buyers also posted a one-point gain to 70. The component measuring sales expectations in the next six months held steady for the third consecutive month at 84.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 74, the Midwest posted a two-point gain to 74 and the South and West each posted a three-point rise to 87, respectively.

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was at the consensus forecast, and a strong reading.

by Calculated Risk on 12/15/2021 08:36:00 AM

On a monthly basis, retail sales were increased 0.3% from October to November (seasonally adjusted), and sales were up 18.2 percent from November 2020.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for November 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $639.8 billion, an increase of 0.3 percent from the previous month, and 18.2 percent above November 2020.
emphasis added

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.1% in November.

The second 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 15.6% on a YoY basis.

Sales in November were well below expectations, and sales in September and October were revised down, combined.

by Calculated Risk on 12/15/2021 07:00:00 AM

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

Mortgage applications decreased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 10, 2021.

... The Refinance Index decreased 6 percent from the previous week and was 41 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 9 percent lower than the same week one year ago.

“Applications to refinance fell over the week, despite the 30-year fixed rate remaining at 3.30 percent. With rates more than 40 basis points higher than last year, applications were down 41 percent on an annual basis. Fewer homeowners have a strong incentive to refinance at current rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase activity increased slightly, as a 1.7 percent rise in conventional applications offset a 1.6 percent decline in applications for government loans. The strength in conventional purchase activity continues to support higher loan balances, which moved back over $400,000. Housing demand remains strong as the year comes to an end amidst tight inventory and steep home-price growth.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.30 percent, with points remaining unchanged at 0.39 (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 slightly elevated, but down sharply from last year.

The second graph shows the MBA mortgage purchase index

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

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

by Calculated Risk on 12/14/2021 06:38:00 PM

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

• At 8:30 AM, Retail sales for November will be released.  The consensus is for a 1.4% increase in retail sales.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for December. The consensus is for a reading of 25.0, down from 30.9.

• At 10:00 AM, The December NAHB homebuilder survey. The consensus is for a reading of 84, up from 83. Any number above 50 indicates that more builders view sales conditions as good than poor.

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to announce a faster taper pace for asset purchases.

• Also at 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

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

And on COVID:

COVID Metrics
	Today	Week Ago	Goal
Percent fully Vaccinated	61.0%	---	≥70.0%1
Fully Vaccinated (millions)	202.5	---	≥2321
New Cases per Day3🚩	117,890	106,923	≤5,0002
Hospitalized3🚩	57,191	52,394	≤3,0002
Deaths per Day3🚩	1,147	1,095	≤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.

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 12/14/2021 01:16:00 PM

I haven't posted this in some time.  The employment diffusion indexes are useful in gauging how widespread job gains are in a given month.

The BLS diffusion index for total private employment was at 63.0 in November, down from 73.9 in October.

For manufacturing, the diffusion index was at 67.3, up from 66.7 the previous month.

Think of this as a measure of how widespread job gains or losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.  From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Click on graph for larger image.

Both indexes declined sharply in March 2020, and collapsed to new record lows in April 2020 due to the impact from COVID-19.  Then the indexes increased as the economy bounced back.

Both indexes were solid in November, indicating job growth was widespread across industries.

by Calculated Risk on 12/14/2021 09:12:00 AM

In November, Goldman Sachs economists put out a research note on the labor force participation rate: Why Isn’t Labor Force Participation Recovering?

Here are few excerpts from the note:

While the unemployment rate continues to fall quickly, labor force participation has made no progress since August 2020. ... Most of the 5.0mn persons who have exited the labor force since the start of the pandemic are over age 55 (3.4mn), largely reflecting early (1.5mn) and natural (1mn) retirements that likely won’t reverse. The outlook for prime-age persons who have exited the labor force (1.7mn) is more positive, since very few are discouraged and most still view their exits as temporary.

First, there are two important monthly surveys from the BLS. The participation rate (and unemployment rate) comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households.

The jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of approximately 634,000 business establishments nationwide.

These are very different surveys: the CPS gives the total number of employed (and unemployed including the alternative measures), and the CES gives the total number of positions (excluding some categories like the self-employed, and a person working two jobs counts as two positions).

Currently the payroll survey shows there are 3.9 million fewer jobs than in February 2020 (pre-pandemic).  

The household survey shows there are 3.6 million fewer people employed than in February 2020.  

Note: The 5 million number for the labor force, probably assumes some normal labor force growth; however, overall population growth has been dismal over the last 2 years (little immigration and large number of deaths).  I'm not confident in Goldman's 5-million-person estimate.

Here is a graph of the number of missing people by age group (from the CPS household survey).

Click on graph for larger image.

This data is comparing November 2021 to November 2019, using Not Seasonally Adjusted (NSA) data (I compared to November 2019 to minimize the seasonal impact when using NSA data).

Positive numbers are missing workers.

Almost all of the missing employed workers - by this method - are in the 25 to 29 and in the 45 to 59 age groups.

Note: this is over a 2-year period, and there have been some demographic shifts between cohorts.

This data would suggest most of the missing workers are prime age or took early retirement (the missing workers in their '50s).

by Calculated Risk on 12/13/2021 08:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Start Lower, But Could See Some Volatility This Week

... today's effective rates were a bit lower versus Friday afternoon. Improvement mostly followed a bond rally which, in turn, followed weakness in the stock market. Low volume contributed to the size of the move, which is to say it would have been even smaller during a busier time of the year for financial markets.

Nonetheless, things will probably get fairly busy in the middle of the week after the Federal Reserve releases its new policy statement. The Fed is expected to announce that it will curtail its rate-friendly bond purchases at a faster pace. [30 year fixed 3.17%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for November.

• At 8:30 AM, The Producer Price Index for November from the BLS. The consensus is for a 0.6% increase in PPI, and a 0.5% increase in core PPI.

And on COVID:

COVID Metrics
	Today	Week Ago	Goal
Percent fully Vaccinated	60.9%	---	≥70.0%1
Fully Vaccinated (millions)	202.2	---	≥2321
New Cases per Day3🚩	116,742	106,952	≤5,0002
Hospitalized3🚩	54,311	51,633	≤3,0002
Deaths per Day3	1,131	1,144	≤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.

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 12/13/2021 04:28:00 PM

Today, in the Real Estate Newsletter: 3rd Look at Local Housing Markets in November

Excerpt:

Looks like we will see new record low inventories this winter
...
Here is a summary of active listings for these housing markets in November. Inventory was down 14.7% in November month-over-month (MoM) from October, and down 28.7% year-over-year (YoY).

Inventory almost always declines seasonally in November, so the MoM decline is not a surprise. Last month, these markets were down 25.4% YoY, so the YoY decline in November is larger than in October. This isn’t indicating a slowing market..

Notes for all tables:

1. New additions to table in BOLD.

2. Northwest (Seattle), North Texas (Dallas), and Santa Clara (San Jose), Jacksonville, Source: Northeast Florida Association of REALTORS®

3. Totals do not include Denver (included in state totals).

by Calculated Risk on 12/13/2021 12:19:00 PM

This is an update to a post I wrote in August.

The first graph shows the PCE price index since January 2020 (before the pandemic), and the dashed blue line is the Fed's target of 2%.

Click on graph for larger image.

The recent increase in inflation has led to some analysts to call for the Fed to raise rates.   For example, from CNBC this morning: El-Erian says ‘transitory’ was the ‘worst inflation call in the history’ of the Fed

“If I were them, I would do three things, which they will not do,” [El-Erian] said during a “Squawk Box” interview. “I would 1) be very open and honest as to why I got the inflation call wrong and try to regain the inflation narrative. 2) I would go even further than doubling the rate of taper, and 3) I would open it up to the possibility that rate hikes may come faster than what the market has. They’re not gonna do that."

The FOMC will likely announce a faster pace of tapering assets purchases at the meeting this week, and asset purchases will probably end in March (if not sooner).

The second graph is from January 2005 (just an arbitrary date).

This shows that inflation has been below target for years. If we were doing price targeting (we aren't), then prices would just be getting back to the target.

The graphs for core PCE inflation show the same pattern, but core PCE is even further below the trend line.

The question is not will some prices "stick", but rather will YoY inflation ease back towards the Fed's target? Or will inflation stay elevated?

My sense is inflation will ease back towards the Fed's target over the next year.

by Calculated Risk on 12/13/2021 10:14:00 AM

Tracking existing home inventory is very important this year and in 2022.

Click on graph for larger image in graph gallery.

This inventory graph is courtesy of Altos Research.

As of December 10th, inventory was at 339 thousand (7-day average), compared to 469 thousand for the same week a year ago.  That is a decline of 27.7%.  Inventory is down 3.3% from last week.

Compared to the same week in 2019, inventory is down 58.8% from 822 thousand.  A week ago, inventory was at 350 thousand, and was down 27.1% YoY.   

Seasonally, inventory bottomed in April (usually inventory bottoms in January or February). Inventory last week was about 10.6% above the record low set-in early April.

Inventory peaked for the year in early September, when inventory was at 437 thousand (the peak for the year), so inventory is currently off about 22.5% from the peak for the year.  

Mike Simonsen discusses this data regularly on Youtube.