by Calculated Risk on 9/12/2024 12:29:00 PM

The Federal Reserve released the Q2 2024 Flow of Funds report today: Financial Accounts of the United States.

The net worth of households and nonprofits rose to $163.8 trillion during the second quarter of 2024. The value of directly and indirectly held corporate equities increased $0.7 trillion and the value of real estate increased $1.8 trillion.
...
Household debt increased 3.2 percent at an annual rate in the second quarter of 2024. Consumer credit grew at an annual rate of 1.6 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 3 percent.

Click on graph for larger image.

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

Net worth increased $2.8 trillion in Q2 to 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 2024, household percent equity (of household real estate) was at 74.9% - up from 74.2% in Q1, 2024. 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.  

Mortgage debt increased by $98 billion in Q2.

Mortgage debt is up $2.34 trillion from the peak during the housing bubble, but, as a percent of GDP is at 45.9% - 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 9/12/2024 09:51:00 AM

From CoreLogic: CoreLogic: US Homeowners See Equity Gains Continue to Climb, but at a Slower Pace in Q2

CoreLogic® ... today released the Homeowner Equity Report (HER) for the second quarter of 2024. The report shows that U.S. homeowners with mortgages (which account for roughly 62% of all properties) saw home equity increase by 8.0% year over year, representing a collective gain of $1.3 trillion and an average increase of $25,000 per borrower since the second quarter of 2023, bringing the total net homeowner equity to over $17.6 trillion in the second quarter of 2024.
...
“Persistent home price growth has continued to fuel home equity gains for existing homeowners who now average about $315,000 in equity and almost $129,000 more than at the onset of the pandemic.” said Dr. Selma Hepp, chief economist for CoreLogic. “The substantial accumulation of home equity for existing homeowners has served as an important financial buffer in times of uncertainty, as some homeowners facing higher costs of homeowners’ insurance and taxes and have had to tap into their equity to prevent falling behind on their mortgages. As a result, mortgage delinquency rates have remained at historical lows despite the inflationary pressures and higher costs of almost all non-mortgage homeownership-related expenses.”

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.

Negative equity has continued to see a recent decrease across the country. Las Vegas and Los Angeles are the least challenged, with negative equity shares of all mortgages at 0.6% and 0.7%, respectively.

As of the second quarter of 2024, the quarterly and annual changes in negative equity were:


Click on graph for larger image.

• Quarterly change: From the second quarter of 2023 to the second quarter of 2024, the total number of mortgaged homes in negative equity decreased by 4.2%, to 1 million homes or 1.7% of all mortgaged properties.

• Annual change: From the second quarter of 2023 to the first second of 2024, the total number of homes in negative equity decreased by 15%, to 1.1 million homes or 2.0% of all mortgaged properties.

emphasis added

The above graph is from CoreLogic and compares Q2 2024 to Q1 2024 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 decreased to 1.11 million.

by Calculated Risk on 9/12/2024 08:30:00 AM

The DOL reported:

In the week ending September 7, the advance figure for seasonally adjusted initial claims was 230,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 227,000 to 228,000. The 4-week moving average was 230,750, an increase of 500 from the previous week's revised average. The previous week's average was revised up by 250 from 230,000 to 230,250.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 230,750.

The previous week was revised up.

Weekly claims were above the consensus forecast.

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.