by Calculated Risk on 2/06/2024 08:58:00 AM

Today, in the Real Estate Newsletter: ICE (Black Knight) Mortgage Monitor: "Positive Signs in Housing, Mortgage Markets"

Brief excerpt:

There have been very few low credit score mortgage originations. During the housing bubble, many of the low credit score loans were made through the private-labeled securities market.

• In the absence of any meaningful private-labeled securities market, the rise in FHA delinquencies is worth watching, as FHA and VA loans can be early indicators of broader mortgage performance trends

• While low credit score lending hit a record low, by count, in 2023, 90% below the years leading up to the great financial crisis, FHA and VA products have accounted for roughly 70% of sub-660 credit score lending for most of the past decade

• This is a stark contrast from the 2004-2006 era when FHA and VA lending played a minimal role (<10%) in lower credit score lending, which then was dominated by loans backed by private-labeled securities and held in portfolio

• Given the low volume of sub-660 credit score lending and that overall delinquencies remain historically low, FHA and VA delinquencies are not currently a cause for significant broad based market concern, but are worth keeping a close eye on for those invested in GNMA securities as well as non-banks that participate more heavily in FHA and VA lending

There is much more in the article.

by Calculated Risk on 2/06/2024 08:21:00 AM

Notes: This CoreLogic House Price Index report is for December. The recent Case-Shiller index release was for November. The CoreLogic HPI is a three-month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: Job Growth Continues to Drive Annual Home Price Gains in December, CoreLogic Reports

• Annual U.S. home price growth was 5.5% in December 2023, the highest rate of appreciation recorded since January 2023.

• Year-over-year U.S. home prices have recorded annual gains since early 2012.

• In 2023, the average CoreLogic Home Price Index gain was 3.9%, down from 14.5% in 2022 but the same as the annual average in 2019.

• Northeastern states continued to lead the U.S. for annual price gains, with Rhode Island on top at 13.3%.

• Among large metro areas, Miami returned to the No 1. spot for year-over-year home price increases in December, posting a gain of almost 11%.
...
“Last winter’s mortgage rate surge impacted seasonal home price changes in many markets and suggests that annual gains may have reached the cycle peak and will level off in the coming months,” said Dr. Selma Hepp, chief economist for CoreLogic. “But while appreciation is projected to slow, home prices will continue to extend to new highs entering the typically busy spring homebuying season. Also, while the recent dip in mortgage rates help improve some affordability challenges, additional rate declines may not arrive until the second half of 2024.”

“The 2024 homebuying season should enjoy a boost because of pent-up demand, as well as a robust job market and wage growth,” Hepp continued. “Geographic patterns in price gains continued to favor housing markets in the Northeast and the South, especially those that remain more affordable and have lagged in home price increases over the past couple of years.”
emphasis added

by Calculated Risk on 2/05/2024 07:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Launched Back Over 7% by Strong Economic Data

Last Friday was the worst day for mortgage rates in over a year in terms of day-over-day movement (October 19th, 2023 remains the worst day in decades in terms of outright levels with 30yr fixed rates over 8%).

Monday added insult to injury with another sharp increase that took the average top tier conventional 30yr fixed rate back over 7% for the first time since December 12th.

In both cases, the most relevant catalyst was an upbeat economic report. We already know that it was the big jobs report that did the damage on Friday. Today's rate rout came courtesy of the ISM Non-Manufacturing PMI (aka ISM Services). [30 year fixed 6.88%]
emphasis added

Tuesday:
• At 8:00 AM ET: Corelogic House Price index for December.

• At 11:00 AM, NY Fed: Q4 Quarterly Report on Household Debt and Credit

by Calculated Risk on 2/05/2024 02:00:00 PM

From the Federal Reserve: he January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices

The January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the fourth quarter of 2023.

Regarding loans to businesses, survey respondents, on balance, reported tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the fourth quarter. Furthermore, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.

For loans to households, banks, on balance, reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government residential mortgages and government-sponsored enterprise (GSE)-eligible residential mortgages, for which standards remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened, and demand weakened on balance.

While banks, on balance, reported having tightened lending standards further for most loan categories in the fourth quarter, lower net shares of banks reported tightening lending standards than in the third quarter across all loan categories.

The January SLOOS also included a set of special questions inquiring about banks’ expectations for changes in lending standards, borrower demand, and loan performance over 2024. Banks, on balance, reported expecting lending standards to remain basically unchanged for C&I and RRE loans, but to tighten further for CRE, credit card, and auto loans. In addition, banks reported expecting loan demand to strengthen across all loan categories, and loan quality to deteriorate across most loan types.
emphasis added

Click on graph for larger image.

This graph on Residential Real Estate demand is from the Senior Loan Officer Survey Charts.

The upper graphs are for standards and shows standards have tightened.  

The lower graph is for demand and shows that demand has declined.

The left graphs are from 1990 to 2014.  The right graphs are from 2015 to Q4 2023.

by Calculated Risk on 2/05/2024 10:08:00 AM

Today, in the Real Estate Newsletter: Lawler: Update on Mortgage Rates and Spreads

Brief excerpt:

From housing economist Tom Lawler:

For the second consecutive year 2023 saw high levels of volatility in the US fixed-income markets in general and the mortgage/MBS markets in particular. Unlike in 2022, however, key Treasury rates and mortgage/MBS yields ended 2023 close to where they began.

30-Yr CCMBS: Yield on “notional par” MBS derived from price for coupon closest to but below par and price for coupon closest to but above par.

30-Yr FRM: Optimal Blue 30-year index for borrowers with LTV<=80 and FICO>740.
...
Much of the “angst” in the MBS market over the last year and a half (aside from high interest rate volatility) was associated with “extension risk” – that is, the slowdown in MBS prepayments when interest rates increase. The sharp increase in mortgage rates following the uber-low rates of the previous few years resulted in a huge number of mortgages with rates well over 300 basis points below current market rates. That had not been seen in over 40 years, and most prepayment models had little or no data on how slow mortgage prepayments could get. In turned out that the answer was “really low” and lower than many models projected, meaning that MBS backed by these low-rate mortgages saw their duration extend by much more than many MBS investors had expected, leading to much larger than “expected” mark-to-market losses.

There is much more in the article.

by Calculated Risk on 2/05/2024 10:00:00 AM

(Posted with permission). The ISM® Services index was at 53.4%, up from 50.5% last month. The employment index increased to 50.5%, from 43.8%. Note: Above 50 indicates expansion, below 50 in contraction.

From the Institute for Supply Management: Services PMI® at 53.4% January 2024 Services ISM® Report On Business®

Economic activity in the services sector expanded in January for the 13th consecutive month as the Services PMI® registered 53.4 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 43 of the last 44 months, with the lone contraction in December 2022.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In January, the Services PMI® registered 53.4 percent, 2.9 percentage points higher than December’s seasonally adjusted reading of 50.5 percent. The composite index indicated growth in January for the 13th consecutive month after a seasonally adjusted reading of 49 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 55.8 percent in January, matching the seasonally adjusted reading of 55.8 percent in December. The New Orders Index expanded in January for the 13th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 55 percent is 2.2 percentage points higher than the seasonally adjusted December reading of 52.8 percent.
emphasis added

The PMI was above expectations.

by Calculated Risk on 2/05/2024 08:12:00 AM

Altos reports that active single-family inventory was down 1.2% week-over-week. I suspect inventory will bottom in February this year, as opposed to mid-April in 2023.

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of February 2nd, inventory was at 497 thousand (7-day average), compared to 503 thousand the prior week.   

Inventory is still far below pre-pandemic levels.

The second graph shows the seasonal pattern for active single-family inventory since 2015.

The red line is for 2024.  The black line is for 2019.  Note that inventory is up 95% from the record low for the same week in 2022, but still well below normal levels.

Inventory was up 8.7% compared to the same week in 2023 (last week it was up 7.9%), and down 39.1% compared to the same week in 2019 (last week down 39.2%). 

Back in June 2023, inventory was down almost 54% compared to 2019, so the gap to more normal inventory levels has closed a little.

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 2/04/2024 07:07:00 PM

Weekend:
• Schedule for Week of February 4, 2024

Monday:
• At 10:00 AM ET, ISM Services Index for January.

• At 2:00 PM, Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS).

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 and DOW futures are mostly unchanged (fair value).

Oil prices were down over the last week with WTI futures at $72.85 per barrel and Brent at $78.00 per barrel. A year ago, WTI was at $73, and Brent was at $79 - so WTI oil prices were mostly unchanged year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.12 per gallon. A year ago, prices were at $3.44 per gallon, so gasoline prices are down $0.32 year-over-year.

by Calculated Risk on 2/04/2024 09:04:00 AM

On Friday, the BEA released their estimate of vehicle sales for January.

This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the January 2024 seasonally adjusted annual sales rate (SAAR).

Heavy truck sales really collapsed during the great recession, falling to a low of 180 thousand SAAR in May 2009.  Then heavy truck sales increased to a new record high of 570 thousand SAAR in April 2019.

Click on graph for larger image.

Note: "Heavy trucks - trucks more than 14,000 pounds gross vehicle weight."

Heavy truck sales declined sharply at the beginning of the pandemic, falling to a low of 308 thousand SAAR in May 2020.  

Heavy truck sales were at 485 thousand SAAR in January, up from 458 thousand in December, and down 3.1% from 501 thousand SAAR in January 2023.  

Usually, heavy truck sales decline sharply prior to a recession.   Heavy truck sales are solid.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.  Vehicle sales were at 15.00 million SAAR in January, down 6.9% from 16.12 million in December, and down 0.7% from 15.11 million in January 2023.

Vehicle sales are usually a transmission mechanism for Federal Open Market Committee (FOMC) policy, although far behind housing.  This time vehicle sales were more suppressed by supply chain issues than Fed rate hikes.

by Calculated Risk on 2/03/2024 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• Case-Shiller: National House Price Index Up 5.1% year-over-year in November

• Inflation Adjusted House Prices 2.3% Below Peak

• Asking Rents Mostly Unchanged Year-over-year

• Fannie and Freddie: Single Family Serious Delinquency Rate Increased Slightly, Multi-family Unchanged in December

• Freddie Mac House Price Index Increased in December; Up 6.6% Year-over-year

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.