by Calculated Risk on 9/08/2023 04:11:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

U.S. railroads originated 1.13 million total carloads in August 2023, down 2.0% from August 2022 and their third straight year-over-year decline. Total carloads averaged 226,675 per week in August 2023, very close to the weekly averages in March through June 2023.

U.S. intermodal originations were down 6.3% in August 2023 from August 2022, their 24th year-over-year decline in the past 25 months. However, originations averaged 247,858 units per week in August 2023, the most in 10 months. Intermodal remains subpar for a number of reasons, including a continuing shift in consumer spending away from goods to services; a related sharp downturn in port activity; and tougher price competition from trucks.
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows the six-week average of U.S. Carloads in 2021, 2022 and 2022:

U.S. railroads (not including the U.S. subsidiaries of Canadian and Mexican railroads) originated 1.13 million total carloads in August 2023, down 2.0% (23,323 carloads) from August 2022 and their third straight yearover-year decline. Carloads averaged 226,675 per week in August 2023, very close to the weekly averages in March through June 2023. (July was lower because of the July 4 holiday.)

The second graph shows the six-week average (not monthly) of U.S. intermodal in 2021, 2022 and 2023: (using intermodal or shipping containers):

A number of factors help explain why U.S. intermodal volumes are down. Here are three. First, U.S. consumer spending is shifting back toward services. Goods as a share of total spending fell from a pandemic era peak of 35.8% in March 2021 to 33.2% in July 2023. Second, port activity is down sharply. Total combined loaded imports and exports at major Western U.S. ports were 20.6% lower (in terms of TEUs) in 2023 through July than in 2022 through July. For major Eastern U.S. ports, the decline was 10.6%. That’s important because imports and exports account for somewhere around half of U.S. intermodal volume. Third, truck competition is more intense today. Based on the producer price index for truckload shipments, average truck rates in July 2023 were 22% lower than in July 2022.

by Calculated Risk on 9/08/2023 01:45:00 PM

Today, in the Real Estate Newsletter: The "Home ATM" Stays Mostly Closed in Q2

Excerpt:

During the housing bubble, many homeowners borrowed heavily against their perceived home equity - jokingly calling it the “Home ATM” - and this contributed to the subsequent housing bust, since so many homeowners had negative equity in their homes when house prices declined. Note: Very few homeowners have negative equity now - unlike during the housing bubble.
...
Here is the quarterly increase in mortgage debt from the Federal Reserve’s Financial Accounts of the United States - Z.1 (sometimes called the Flow of Funds report) released today. In the mid ‘00s, there was a large increase in mortgage debt associated with the housing bubble.

In Q2 2023, mortgage debt increased $90 billion, up from $55 billion in Q1, and down from the cycle peak of $471 billion in Q2 2021. Note the almost 7 years 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 Mortgage Equity Withdrawal (MEW).

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

by Calculated Risk on 9/08/2023 12:26:00 PM

The Federal Reserve released the Q2 2023 Flow of Funds report today: Financial Accounts of the United States.

The net worth of households and nonprofits rose to $154.3 trillion during the second quarter of 2023. The value of directly and indirectly held corporate equities increased $2.6 trillion and the value of real estate increased $2.5 trillion.
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Household debt increased 2.7 percent at an annual rate in the second quarter of 2023. Consumer credit grew at an annual rate of 2.3 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 2.8 percent.

Click on graph for larger image.

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

Net worth increased $5.5 trillion in Q2 and is at an all-time high.  As a percent of GDP, net worth increased in Q2, but is below the peak in 2021.

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.

The second 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 Q2 2023, household percent equity (of household real estate) was at 71.1% - up from 70.0% in Q1, 2023. This is close to the highest percent equity since the 1960s.

Note: This includes households with no mortgage debt.

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 $90 billion in Q2.

Mortgage debt is up $2.15 trillion from the peak during the housing bubble, but, as a percent of GDP is at 47.9% - down from Q1 - and down from a peak of 73.3% of GDP during the housing bust.

The value of real estate, as a percent of GDP, increased in Q2 - but is below the peak in Q2 2022 - and is well above the average of the last 30 years.

by Calculated Risk on 9/08/2023 10:59:00 AM

From BofA:

Overall, the data flow since our last report pushed our 3Q US GDP tracking up four-tenths to 3.1% q/q saar and 2Q up two-tenths to 2.5%. Next week, August CPI, retail sales, PPI, import and export prices, industrial production and monthly budget statement will affect our GDP tracking [Sept 8th estimate]
emphasis added

From Goldman:

July goods exports were stronger than our previous assumption, and we boosted our Q3 GDP tracking estimate by 0.2pp to +3.1% (qoq ar). We left our Q3 domestic final sales growth forecast unchanged at +2.8%. [Sept 6th estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 5.6 percent on September 6, unchanged from September 1 after rounding. After recent releases from the US Census Bureau, the US Bureau of Economic Analysis, and the Institute for Supply Management, decreases in the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth were offset by an increase in the nowcast of third-quarter real net exports. [Sept 6th estimate]

by Calculated Risk on 9/08/2023 09:10:00 AM

From Manheim Consulting today: Wholesale Used-Vehicle Prices See Minimal Increase in August

Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 0.2% in August from July. The Manheim Used Vehicle Value Index (MUVVI) rose to 212.2, down 7.7% from a year ago.

“August brought a stop to wholesale price declines, though it was only a small reversal of the larger magnitude declines so far this spring and early summer,” said Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive. “Historically speaking, the monthly figure aligns with the 0.3% average we’ve seen since 1997. Sure, there were swings in August during the financial crisis, the COVID reopening period of 2020, and the 2022 doldrums; but this year, the performance looks more ordinary. Like last month’s note, the current Manheim Index level of 212.2 is barely above that of the 212.1 measure seen in August 2021. Used market conditions have been quite consistent for a few months and are not likely to change much, even with the larger push toward balance; sales are slightly stronger than expected, inventory remains tight, and prices are holding at levels around 6% below last year at the same time. These factors are expected to prevent any substantial decline in wholesale prices through year-end.”

The seasonal adjustment minimized August’s increase. The non-adjusted price change in August increased by 0.9% compared to July, moving the unadjusted average price down 7.5% year over year.
emphasis added

Click on graph for larger image.

This index from Manheim Consulting is based on all completed sales transactions at Manheim’s U.S. auctions.

The Manheim index suggests used car prices increased slightly in August (seasonally adjusted) and were down 7.7% year-over-year (YoY).

by Calculated Risk on 9/08/2023 08:11:00 AM

From CoreLogic: CoreLogic: Home Equity Increases From Winter to Spring, Reducing Underwater Properties in Q2

CoreLogic® ... today released the Homeowner Equity Report (HER) for the second quarter of 2023. The report shows that U.S. homeowners with mortgages (which account for roughly 63% of all properties) saw home equity decrease by 1.7% year over year, representing a collective loss of $287.6 billion, and an average loss of $8,300 per borrower since the second quarter of 2022.

However, U.S. homeowners with mortgages gained on average $13,900 quarter over quarter, amounting to a collective increase of $806 billion – or a 5.2% gain – in home equity. And while borrowers in the West continued to experience the largest year-over-year equity losses, homeowners in states like Hawaii, California and Washington still have the most accumulated equity due to the pace of appreciation over the past decade.

“While U.S. home equity is now lower than its peak in the second quarter of 2022, owners are in a better position than they were six months ago, when prices bottomed out,” said Selma Hepp, chief economist for CoreLogic. “The 5% overall increase in home prices since February means that the average U.S. homeowner has gained almost $14,000 compared with the previous quarter, a significant improvement for borrowers who bought when prices peaked in the spring of 2022.”

“Also, while more borrowers are underwater compared with one year ago,” Hepp continued, “they are not necessarily concentrated in markets that have seen the largest price declines, as negative equity also depends on the down payment. Natural disasters and related risks also play a substantial role in home equity changes.”

Negative equity, also referred to as underwater or upside-down mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the second quarter of 2023, the quarterly and annual changes in negative equity were:

Click on graph for larger image.

• Quarterly change: From the first quarter of 2023 to the second quarter of 2023, the total number of mortgaged homes in negative equity decreased by 6%, to 1.11 million homes or 2% of all mortgaged properties.

• Annual change: From the second quarter of 2022 to the second quarter of 2023, the total number of homes in negative equity increased by 4% from 1.06 million homes or 1.9% of all mortgaged properties.
emphasis added

The above graph is from CoreLogic and compares Q2 2023 to Q1 2023 equity distribution by LTV. There are still a few properties with LTV over 125%.  But most homeowners have a significant amount of equity.  

This is a very different picture than at the start of the housing bust when many homeowners had little equity.

The second graph is from a 2011 CoreLogic report and shows a large number of homeowners with negative equity - even as house prices were nearing a bottom!

On a year-over-year basis, the number of homeowners with negative equity has increased from 1.06 million to 1.11 million.

by Calculated Risk on 9/07/2023 08:48:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 12:00 PM ET, Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 9/07/2023 03:56:00 PM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report from Sabrina Speianu and Danielle Hale: Weekly Housing Trends View — Data Week Ending Sep 2, 2023

• Active inventory declined, with for-sale homes lagging behind year ago levels by 5.2%..

This past week marked the 11th consecutive decline in the number of homes actively for sale compared to the prior year, however the gap narrowed slightly compared to the previous week’s -5.9% figure. With inventory continuing to remain constrained, the pending and existing home sales pace has consistently hovered around a low level in recent months as high mortgage rates and home prices drive sellers and buyers to put plans to move on-hold.

• New listings–a measure of sellers putting homes up for sale–were down again this week, by 8.5% from one year ago..

For the past 61 weeks, there have been fewer newly listed homes compared to the same time one year ago. In July and August, this gap shrank from more than 20% lower to around 8% lower. While the number of newly listed homes increased from July to August (which is not typical in this season), new home listings have once again begun to decline as is expected heading into September. This past week, newly listed homes were down 8.5% compared to a year ago and this gap may have re-stabilized at this level.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was down 5.2% year-over-year - this was the eleventh consecutive week with a YoY decrease following 58 consecutive weeks with a YoY increase in inventory.  

Inventory is still up from the record lows in the 2nd half of 2021 and early 2022, and it is unlikely we will see new record lows by this measure this year.

by Calculated Risk on 9/07/2023 11:56:00 AM

Today, in the Calculated Risk Real Estate Newsletter: 1st Look at Local Housing Markets in August

A brief excerpt:

This is the first look at several early reporting local markets in August. I’m tracking about 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I’ll update these tables throughout the month as additional data is released.

Closed sales in August were mostly for contracts signed in June and July. Since 30-year fixed mortgage rates were in the 6.7% range in June, and 6.8% in July, compared to the mid-5% range the previous year, closed sales were down year-over-year in August.
...
In August, sales in these markets were down 10.3%. In July, these same markets were down 11.8% YoY Not Seasonally Adjusted (NSA).

This is a slightly smaller YoY decline NSA than in July for these early reporting markets. Note that there were the same number of selling days each year in August 2022 and August 2023. ... This early data suggests the August existing home sales report will show another significant YoY decline - and probably close to the July sales rate of 4.07 million (SAAR) - and the 24th consecutive month with a YoY decline in sales.

This was just several early reporting markets. Many more local markets to come!

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

by Calculated Risk on 9/07/2023 11:23:00 AM

The FDIC released the Quarterly Banking Profile for Q2 2023:

Reports from 4,645 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reflect aggregate net income of $70.8 billion in second quarter 2023. Though second-quarter net income decreased by $9.0 billion (11.3 percent) from first quarter 2023, after excluding the effects on acquirers‘ incomes of their acquisition of three failed banks in 2023, quarter-over-quarter net income would have been roughly flat for the second consecutive quarter. Declines in noninterest income, reflecting the accounting treatment of the acquisition of three failed institutions, lower net interest income, and higher provision expenses were the drivers of the decline in net income. These and other financial results for second quarter 2023 are included in the FDIC‘s latest Quarterly Banking Profile released today.
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Asset Quality Metrics Remained Favorable Despite Modest Deterioration: Loans that were 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) increased to 0.76 percent of total loans, up 1 basis point from the prior quarter. Noncurrent nonfarm, nonresidential commercial real estate loan balances drove the increase in the noncurrent rate. Net charge-offs as a ratio of total loans increased 7 basis points from the prior quarter and 25 basis points from a year prior to 0.48 percent. The industry’s net charge-off rate is now equal to its pre-pandemic average.
emphasis added

Click on graph for larger image.

The FDIC reported the number of problem banks was unchanged at 43.

The number of FDIC-insured institutions declined from 4,672 in first quarter to 4,645 this quarter. During the quarter, two banks opened, one bank failed, and 27 institutions merged. In addition, one bank failed during the third quarter and did not file a second quarter 2023 Call Report. The number of banks on the FDIC’s “Problem Bank List” remained unchanged at 43. Total assets of problem banks decreased from $58.0 billion to $46.0 billion

This graph from the FDIC shows the number of problem banks and assets at problem institutions.

Note: The number of assets for problem banks increased significantly back in 2018 when Deutsche Bank Trust Company Americas was added to the list.  An even larger unknown bank was added to the list in Q4 2021, and - since problem assets dropped sharply last year - that bank is now off the problem list.