by Calculated Risk on 9/11/2024 07:09:00 PM

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

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 225 thousand initial claims, down from 227 thousand last week.

• At 8:30 AM, The Producer Price Index for August from the BLS. The consensus is for a 0.2% increase in PPI, and a 0.2% increase in core PPI.

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

by Calculated Risk on 9/11/2024 04:02:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.4 percent over the last 12 months to an index level of 308.640 (1982-84=100). For the month, the index was unchanged prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U and is not seasonally adjusted (NSA).

• In 2023, the Q3 average of CPI-W was 301.236.

The 2023 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled is for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 2.4% year-over-year in August, and although this is early - we need the data for July, August and September - my guess is COLA will probably be around 2.4% this year, the smallest increase since 1.3% in 2021.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one-year lag. The National Average Wage Index is not available for 2023 yet, although we know wages increased solidly in 2023. If wages increased 5% in 2023, then the contribution base next year will increase to around $177,000 in 2025, from the current $168,600.

Remember - this is an early look. What matters is average CPI-W, NSA, for all three months in Q3 (July, August and September).

by Calculated Risk on 9/11/2024 12:17:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI.

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% in August. The 16% trimmed-mean Consumer Price Index increased 0.2%. "The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report".

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. 

On a year-over-year basis, the median CPI rose 4.2% (down from 4.2% in July, rounded), the trimmed-mean CPI rose 3.2% (down from 3.3%), and the CPI less food and energy rose 3.2% (unchanged from 3.2%). 

Core PCE is for July was up 2.6% YoY, unchanged from 2.6% in June.

Note: The Cleveland Fed released the median CPI details. Fuel oil and other fuels decreased at a 17% annual rate in August (and will likely decrease further in September).

Rent and Owner's equivalent rent are still high, and if we exclude rent, median CPI would be around -1% month-over-month, annualized. 

by Calculated Risk on 9/11/2024 09:44:00 AM

Today, in the Real Estate Newsletter: Asking Rents Mostly Unchanged Year-over-year

Brief excerpt:

Tracking rents is important for understanding the dynamics of the housing market. For example, the sharp increase in rents helped me deduce that there was a surge in household formation in 2021 (See from September 2021: Household Formation Drives Housing Demand). Now that household formation has slowed, and multi-family completions have increased, rents are under pressure.

Welcome to the September 2024 Apartment List National Rent Report. Our model captured an average rent decrease of -0.1% in August, and today the nationwide median rent stands at $1,412. This signals the end of the rental market’s annual busy season, as well as the second consecutive summer of modest rent growth, as the market remains sluggish thanks to a windfall of new supply. If historical trends hold, rents will continue to fall on a monthly basis for the remainder of the year.

...
Realtor.com: 12th Consecutive Month with Year-over-year Decline in Rents

In July 2024, the U.S. median rent continued to decline year over year for the 12th month in a row, down $12 (-0.7%) for 0-2 bedroom properties across the top 50 metros, faster than the rate of -0.4% seen in June 2024. The median asking rent was $1,741, down by $2 from last month, reflecting a similar seasonal trend as observed in the for-sale market. 

by Calculated Risk on 9/11/2024 08:54:00 AM

Here are a few measures of inflation:

The first graph is the one Fed Chair Powell had mentioned when services less rent of shelter was up around 8% year-over-year.  This declined and is now up 4.3% YoY.

Click on graph for larger image.

This graph shows the YoY price change for Services and Services less rent of shelter through August 2024.

Services were up 4.8% YoY as of August 2024, down from 4.9% YoY in July.

Services less rent of shelter was up 4.3% YoY in August, down from 4.6% YoY in July.

The second graph shows that goods prices started to increase year-over-year (YoY) in 2020 and accelerated in 2021 due to both strong demand and supply chain disruptions.

Durables were at -4.2% YoY as of August 2024, down from -4.1% YoY in July.

Commodities less food and energy commodities were at -1.7% YoY in August, unchanged from -1.7% YoY in July.

Here is a graph of the year-over-year change in shelter from the CPI report (through August) and housing from the PCE report (through July)

Shelter was up 5.2% year-over-year in August, up from 5.0% in July. Housing (PCE) was up 5.3% YoY in July, down from 5.3% in June (rounded).

The BLS noted: "The index for shelter rose 0.5 percent in August and was the main factor in the all items increase."

This is still catching up with private data.

Core CPI ex-shelter was up 1.7% YoY in August, down from 1.8% in July.

by Calculated Risk on 9/11/2024 08:30:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis, the same increase as in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.5 percent before seasonal adjustment.

The index for shelter rose 0.5 percent in August and was the main factor in the all items increase. The food index increased 0.1 percent in August, after rising 0.2 percent in July. The index for food away from home rose 0.3 percent over the month, while the index for food at home was unchanged. The energy index fell 0.8 percent over the month, after being unchanged the preceding month.

The index for all items less food and energy rose 0.3 percent in August, after rising 0.2 percent the preceding month. Indexes which increased in August include shelter, airline fares, motor vehicle insurance, education, and apparel. The indexes for used cars and trucks, household furnishings and operations, medical care, communication, and recreation were among those that decreased over the month.

The all items index rose 2.5 percent for the 12 months ending August, the smallest 12-month increase since February 2021. The all items less food and energy index rose 3.2 percent over the last 12 months. The energy index decreased 4.0 percent for the 12 months ending August. The food index increased 2.1 percent over the last year.
emphasis added

The change in CPI was at expectation and core CPI slightly above expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 9/11/2024 07:00:00 AM

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

Mortgage applications increased 1.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending September 6, 2024. This week’s results include an adjustment for the Labor Day Holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 1.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 10 percent compared with the previous week. The Refinance Index increased 1 percent from the previous week and was 106 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 10 percent compared with the previous week and was 3 percent lower than the same week one year ago.

“Mortgage rates declined for the sixth consecutive week, with the 30-year fixed rate decreasing to 6.29 percent, the lowest rate since February 2023. Treasury yields have been responding to data showing a picture of cooling inflation, a slowing job market, and the anticipated first rate cut from the Federal Reserve later this month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “With rates almost a full percentage point lower than a year ago, refinance applications continue to run much higher than last year’s pace. However, there is still somewhat limited refinance potential as many borrowers still have sub-5 percent rates. It is a positive development that there are homeowners who can benefit from a refinance as rates continues to move lower.”

Added Kan, “Purchase applications increased over the week and are edging closer to last year’s levels. Despite the drop in rates, affordability challenges and other factors such as limited inventory might still be hindering purchase decisions.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.29 percent from 6.43 percent, with points decreasing to 0.55 from 0.56 (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 MBA mortgage purchase index.

According to the MBA, purchase activity is down 3% year-over-year unadjusted.  

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

Purchase application activity is up about 10% from the lows in late October 2023, but still below the lowest levels during the housing bust.  

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022 - and mostly flat lined for two years - but has increased recently as mortgage rates declined.

by Calculated Risk on 9/10/2024 07:16:00 PM

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

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, The Consumer Price Index for August from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.  The consensus is for CPI to be up 2.6% year-over-year (down from 2.9% in July) and core CPI to be up 3.2% YoY (unchanged from 3.2% in July).

by Calculated Risk on 9/10/2024 03:54:00 PM

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

From CoreLogic: CoreLogic: Annual US Home Price Growth Dips Below 5% as Summer Brings Notable Cooling to the Housing Market

• U.S. home prices posted a 4.3% year-over-year gain in July, with no states posting double-digit gains.

• Home prices showed no gains in July compared with the month before – the first July since 2010 that home prices didn’t increase outside the 2022 declines following a surge in mortgage rates

• By August, home prices are forecast to rise only 0.2% as the summer slowdown continues.

• Miami once again took the lead as the metro with the greatest price growth among the top 10 largest metros
...
U.S. year-over-year home price gains inched down, reaching 4.3% in July, falling further from the previous month’s 4.7% and resting below 5% for the third consecutive month. On a month-over-month basis, home prices decreased by 0.01% in July 2024 compared with June 2024. We will likely see home prices continue to slide for the remainder of the year as sales across the country slow. Although July marked the 150th consecutive month of annual growth, monthly home price growth is starting to slip, and annual forecasts are showing smaller anticipated gains. By August, home prices are forecast to rise only 0.2%, and next year, prices will inch up by 2.2%.

Much of this sluggishness can be attributed to high mortgage interest rates that are continuing to challenge the housing market. As buyers remain cautious, sales remain low. However, the highly anticipated rate cuts from the Federal Reserve this fall may help improve consumer purchase sentiment for the housing market.

“Housing demand continued to buckle under the pressure of high mortgage rates and unaffordable home prices, leading to a considerable slowing of home price gains during the summer. July’s prices were essentially flat from the month before, which was notably cooler than the average gain of 0.4% recorded between June and July in years prior to the pandemic and especially during the pandemic,” said Dr. Selma Hepp chief economist for CoreLogic. “The question for home prices going forward is whether the upcoming rate cut from the Fed and expected continuation of falling mortgage rates will be sufficient to motivate potential homebuyers who may start to fear cooling labor market and continued uncertainty of a soft landing, along with anticipation around the presidential election. And while lower mortgage rates are a boost to affordability and are likely to help buyer demand, the usual fall housing market slowdown is upon us and is likely to contain any significant surge in activity.”
emphasis added

This was a smaller YoY increase than reported for May, and down from the 5.8% YoY increase reported at the beginning of 2024.

by Calculated Risk on 9/10/2024 01:52:00 PM

Here is another monthly update on lumber prices.

SPECIAL NOTE: The CME group discontinued the Random Length Lumber Futures contract on May 16, 2023.  I switched to a physically-delivered Lumber Futures contract that was started in August 2022. 

Unfortunately, this impacts long term price comparisons since the new contract was priced about 24% higher than the old random length contract for the period when both contracts were available.

This graph shows CME random length framing futures through last August (blue), and the new physically-delivered Lumber Futures (LBR) contract starting in August 2022 (Red).

LBR is currently at $505 per 1000 board feet, up slightly from a year ago.

Click on graph for larger image.

There is somewhat of a seasonal demand for lumber, and lumber prices frequently peak in the first half of the year.

We didn't see a significant runup in the Spring period of 2023 or 2024 due to the housing slowdown.