by Calculated Risk on 3/13/2022 10:11:00 AM

Expectations are the FOMC will announce a 25bps rate hike at the meeting this week.  In addition, the FOMC will hint at balance sheet reduction (runoff of assets / not reinvesting) and indicate further rate hikes at upcoming meetings.

The invasion of Ukraine will probably keep a 50bps rate hike off the table for now (the war is leading to a surge in prices, but the Fed cannot stop the war or end the pandemic with monetary policy).

From Merrill Lynch:

"We expect the Fed to kick off the rate hiking cycle at the March FOMC meeting with a 25bp increase in the fed funds target range to 0.25-0.50%. In addition, the Fed is likely to release an addendum to their “Principles for Reducing the Size of the Federal Reserve's Balance Sheet”, with specifics on caps for the unwinding of their holdings of Treasuries and agency securities. This will provide a strong signal that the Fed is ready to commence Quantitative Tightening (QT) as early as the following meeting in May ...These actions would be in line with Chair Powell’s messaging at the semi-annual monetary policy testimony in early March, in which he explicitly stated that he would propose and support a 25bp hike and that he expects the Committee to set the pace of balance sheet runoff at the next meeting."
emphasis added

Projections will be released at this meeting.  Here are the December projections.  In December, most participants expected 3 rate hikes in 2022, and now many analysts expect 7 rate hikes this year.  A huge change!  

From Goldman last month: 

"We are raising our Fed forecast to include seven consecutive 25bp rate hikes at each of the remaining FOMC meetings in 2022 (vs. five hikes in 2022 previously).”

And from Merrill:

"Inflation is here and it continues to make its presence known everywhere. We remain comfortable with our hawkish call for the Fed to hike seven times this year."

Wall Street forecasts are for GDP to barely increase in Q1 2022, and to be in the 2% to 3% range for 2022. This is a sharp reduction in Wall Street growth forecasts, and the FOMC will probably lower their 2022 forecast down to 3% or so.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2022	2023	2024
Dec 2021	3.6 to 4.5	2.0 to 2.5	1.8 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.8% in February. There will likely be a slight reduction in the unemployment rate forecast for Q4 2022.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2022	2023	2024
Dec 2021	3.4 to 3.7	3.2 to 3.6	3.2 to 3.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of January 2022, PCE inflation was up 6.1% from January 2021.  It seems like the FOMC will revise up their inflation projections for 2022.

From Greg Ip at the WSJ: War in Ukraine Fans the Flames of Global Inflation

"From the Russian Revolution to Vietnam, war has been a reliable precursor to inflation. History may be about to repeat as Russia’s invasion of Ukraine tilts the balance of global political and economic forces toward higher inflation."

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2022	2023	2024
Dec 2021	2.2 to 3.0	2.1 to 2.5	2.0 to 2.2

PCE core inflation was up 5.2% in January year-over-year.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2022	2023	2024
Dec 2021	2.5 to 3.0	2.1 to 2.4	2.0 to 2.2

by Calculated Risk on 3/12/2022 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• 2nd Look at Local Housing Markets in February

• The Home ATM Open in Q4 2021; Closing in 2022

• 1st Look at Local Housing Markets in February

• Homebuilder Comments in February: “Demand is still high"

• Black Knight Mortgage Monitor for January; "$275 billion in equity withdrawn" in 2021

This is usually published several times a week and provides more in-depth analysis of the housing market.

The blog will continue as always!

You can subscribe at https://calculatedrisk.substack.com/ Most content is available for free (and no Ads), but please subscribe!

by Calculated Risk on 3/12/2022 08:11:00 AM

The key reports this week are February Retail Sales, Housing Starts and Existing Home Sales.

For manufacturing, the February Industrial Production report and the March NY and Philly Fed manufacturing surveys will be released.

The FOMC meets this week, and the FOMC is expected to raise rates.

----- Monday, March 14th -----
10:00 AM: State Employment and Unemployment (Monthly), January 2022

----- Tuesday, March 15th -----
8:30 AM: The New York Fed Empire State manufacturing survey for March. The consensus is for a reading of 7.2, up from 3.1.

8:30 AM ET: The Producer Price Index for February from the BLS. The consensus is for a 0.9% increase in PPI, and a 0.6% increase in core PPI.

----- Wednesday, March 16th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Retail sales for February is scheduled to be released.  The consensus is for a 0.4% increase in retail sales.

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 4.2% in January.

10:00 AM: The March NAHB homebuilder survey. The consensus is for a reading of 81, down from 82.  Any number above 50 indicates that more builders view sales conditions as good than poor.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to raise the Fed Funds rate by 25bps at this meeting.

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.

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

----- Thursday, March 17th -----
8:30 AM: Housing Starts for February.

This graph shows single and multi-family housing starts since 1968.

The consensus is for 1.695 million SAAR, up from 1.638 million SAAR.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for a decrease to 225 thousand from 227 thousand last week.

8:30 AM: the Philly Fed manufacturing survey for March. The consensus is for a reading of 15.0, down from 16.0.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for February.

This graph shows industrial production since 1967.

The consensus is for a 0.5% increase in Industrial Production, and for Capacity Utilization to increase to 77.9%.

----- Friday, March 18th -----
10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 6.16 million SAAR, down from 6.50 million.

The graph shows existing home sales from 1994 through the report last month.

by Calculated Risk on 3/11/2022 09:19:00 PM

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	65.2%	---	≥70.0%1
Fully Vaccinated (millions)	216.4	---	≥2321
New Cases per Day3	35,652	49,000	≤5,0002
Hospitalized3	25,878	36,756	≤3,0002
Deaths per Day3	1,197	1,434	≤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 deaths reported.

New cases, hospitalizations and deaths are now declining.

by Calculated Risk on 3/11/2022 12:53:00 PM

From BofA:

This week’s trade and inventory data along with some adjustments to assumptions left our 1Q GDP tracking estimate unchanged at 1.0% qoq saar. [March 11 estimate]
emphasis added

From Goldman:

We are downgrading our US GDP forecast to reflect higher oil prices and other drags on growth related to the war in Ukraine. ... As a result, we now forecast GDP growth of +0.5%/+1.5%/+2.5%/+2.5% in 2022Q1-Q4 (vs. 1.0%/2.5%/2.5%/2.0% previously), lowering our 2022 real GDP growth forecast to +1.75% on a Q4/Q4 basis (vs. +2.0% previous; 2.7% consensus). [0.5% Q1 March 10 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.5 percent on March 8, up from 0.0 percent on March 1. [March 8 estimate]

by Calculated Risk on 3/11/2022 10:02:00 AM

Today, in the Calculated Risk Real Estate Newsletter: 2nd Look at Local Housing Markets in February

A brief excerpt:

Important on Houston Market

From the Houston Association of REALTORS® (HAR): February Is a Strong Month for Houston Home Sales (Sales up sharply due partially to the freeze in February 2021)

Home sales scored double-digit gains in February, but part of the strong showing was because the statistics compared to last February, when that deadly Texas freeze halted real estate activity for days, and in some cases, even longer. Undistorted by the weather factor were the continued squeeze on inventory, which returned to its all-time low, and pricing, which due to limited supply and ongoing consumer demand, soared to record highs.
emphasis added

And a table of February sales. Sales in these areas were down 2.0% YoY, Not Seasonally Adjusted (NSA). Note: The Houston market was up 25.6% year-over-year due to the freeze in February 2021.

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 Atlanta, and Denver (included in state totals).

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 3/11/2022 08:30:00 AM

From CoStar: STR: US Hotel Performance Down From Previous Week

U.S. hotel performance decreased from the previous week, according to STR‘s latest data through March 5.

Feb. 27 through March 5, 2022 (percentage change from comparable week in 2019*):

• Occupancy: 61.2% (-8.2%)
• Average daily rate (ADR): $137.96 (+4.7%)
• Revenue per available room (RevPAR): $84.39 (-3.8%)

*Due to the pandemic impact, STR is measuring recovery against comparable time periods from 2019.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

Click on graph for larger image.

The red line is for 2022, black is 2020, blue is the median, and dashed light blue is for 2021.

The 4-week average of the occupancy rate is close to the median rate for the previous 20 years (Blue).

Note: Y-axis doesn't start at zero to better show the seasonal change.

The 4-week average of the occupancy rate will increase seasonally over the next few weeks.

by Calculated Risk on 3/10/2022 09:15:00 PM

From Matthew Graham at Mortgage News Daily: Sorry... Mortgage Rates Definitely Aren't Still Under 4%

The average lender is now definitively up and over 4.25% for the first time since early 2019. In other words, today's rates are the highest in almost 3 years. [30 year fixed 4.28%]
emphasis added

Friday:
• At 10:00 AM, University of Michigan's Consumer sentiment index (Preliminary for March).

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	65.2%	---	≥70.0%1
Fully Vaccinated (millions)	216.4	---	≥2321
New Cases per Day3	37,146	52,155	≤5,0002
Hospitalized3	26,655	38,581	≤3,0002
Deaths per Day3	1,179	1,572	≤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 deaths reported.

New cases, hospitalizations and deaths are now declining.

by Calculated Risk on 3/10/2022 02:32:00 PM

Today, in the Real Estate Newsletter: The Home ATM Open in Q4 2021; Closing in 2022

Excerpt:

First, here is the quarterly increase in mortgage debt from the Federal Reserve’s report since 2000. In the mid ‘00s, there was a large increase in mortgage debt associated with the housing bubble.

In Q4 2021, mortgage debt increased $245 billion, the largest quarterly increase since 2006. Note the almost 7 year of declining mortgage debt as distressed sales (foreclosures and short sales) wiped out a significant amount of debt.

However, some of this debt is being used to increase the housing stock (purchase new homes), so this isn’t all MEW.
...
The bottom line is the recent increase in MEW is not concerning - it is far less as a percent of disposable personal income than during the bubble, and most homeowners have substantial equity.

Also, it is very likely that MEW will decrease sharply in 2022 as refinance activity declines due to higher mortgage rates. I expect significantly lower levels of MEW in 2022.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/ (All ad free, most content free).

by Calculated Risk on 3/10/2022 02:08:00 PM

The Federal Reserve released the Q4 2021 Flow of Funds report today: Financial Accounts of the United States.

The net worth of households and nonprofits rose to $150.3 trillion during the fourth quarter of 2021. The value of directly and indirectly held corporate equities increased $2.5 trillion and the value of real estate increased $1.5 trillion.
...
Household debt increased 8 percent at an annual rate in the fourth quarter of 2021. Consumer credit grew at an annual rate of 6.9 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 8 percent.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  

With the sharp decline in GDP in Q2 2020, net worth as a percent of GDP increased sharply, and then declined somewhat.  But now net worth as a percent of GDP is at a new all-time high.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q4 2021, household percent equity (of household real estate) was at 69.2% - up from 68.8% in Q3 This is the highest percent equity since the 1980s.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So, the approximately 50+ million households with mortgages have less than 67.7% equity - and about 1.1 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.  Note this graph was impacted by the sharp decline in Q2 2020 GDP.

Mortgage debt increased by $245 billion in Q4.  This is the largest quarterly increase in mortgage debt since 2006.

Mortgage debt is up $1.05 trillion from the peak during the housing bubble, but, as a percent of GDP is at 48.9% - down from Q2 - and down from a peak of 73.3% of GDP during the housing bubble.

The value of real estate, as a percent of GDP, increased in Q4, and is well above the average of the last 30 years.