by Calculated Risk on 4/06/2023 08:41:00 AM

NOTE: This release has "revisions to the historical series for CY 2018-2022 for both initial claims and continued claims". And "Beginning with the Unemployment Insurance (UI) Weekly Claims News Release issued Thursday, April 6, 2023, the methodology used to seasonally adjust the national initial claims and continued claims reflects a change in the estimation of the models."

The DOL reported:

In the week ending April 1, the advance figure for seasonally adjusted initial claims was 228,000, a decrease of 18,000 from the previous week's revised level. The previous week's level was revised up by 48,000 from 198,000 to 246,000. The 4-week moving average was 237,750, a decrease of 4,250 from the previous week's revised average. The previous week's average was revised up by 43,750 from 198,250 to 242,000.
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 decreased to 237,750.

The previous week was revised up.

Weekly claims were well above the consensus forecast.

by Calculated Risk on 4/05/2023 09:37:00 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 196 thousand initial claims, down from 198 thousand last week.

by Calculated Risk on 4/05/2023 10:41:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Update: Comparing the Current Housing Cycle to the 1980 Period

Excerpt:

A year ago, I wrote: Housing: Don't Compare the Current Housing Boom to the Bubble and Bust

It is natural to compare the current housing boom to the mid-00s housing bubble. The bubble and subsequent bust are part of our collective memories. And graphs of nominal house prices and price-to-rent ratios look eerily similar to the housing bubble.

However, there are significant differences. First, lending has been reasonably solid during the current boom, whereas in the mid-00s, underwriting standards were almost non-existent (“fog a mirror, get a loan”). And demographics are much more favorable today than in the mid-00s.

A much more similar period to today is the late ‘70s and early ‘80s. House prices were increasing sharply. Demographics were very favorable for homebuying as the baby boomers moved into the first-time homebuying age group (similar to the millennials now). And inflation picked up from an already elevated level due to the second oil embargo in 1979, followed by the Iran-Iraq war in 1980, driving up costs.

Here is an update to several of the graphs I posted comparing the current situation to the 1980 period.
...
Although mortgage rates are much lower than in the 1980 period, it is the Change in Monthly Payment that Matters! Monthly payments include principal, interest, taxes, insurance (PITI), and sometimes HOA fees (Homeowners Association). We could also include maintenance, utilities and other costs.

The following graph shows the year-over-year change in principal & interest (P&I) assuming a fixed loan amount since 1977. Currently P&I is up about 30% year-over-year for a fixed amount (this doesn’t take into account the change in house prices).

The peak YoY change in P&I was similar to 1979.
...
I’ll have much more on the lessons from the 1980 period, and what this likely means going forward for housing.

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

by Calculated Risk on 4/05/2023 10:04:00 AM

(Posted with permission). The ISM® Services index was at 51.2%, down from 55.1% last month. The employment index decreased to 51.3%, from 54.0%. Note: Above 50 indicates expansion, below 50 in contraction.

From the Institute for Supply Management: Services PMI® at 51.2% March 2023 Services ISM® Report On Business®

Economic activity in the services sector expanded in March for the third consecutive month as the Services PMI® registered 51.2 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 33 of the last 34 months, with the lone contraction in December.

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 March, the Services PMI® registered 51.2 percent, 3.9 percentage points lower than February’s reading of 55.1 percent. The composite index indicated growth in March for the third consecutive month after a reading of 49.2 percent in December, the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 55.4 percent, a 0.9-percentage point decrease compared to the reading of 56.3 percent in February. The New Orders Index expanded in March for the third consecutive month after contracting in December for the first time since May 2020; the figure of 52.2 percent is 10.4 percentage points lower than the February reading of 62.6 percent.

“The Supplier Deliveries registered 45.8 percent, 1.8 percentage points lower than the 47.6 percent recorded in February. In the last two months, the index has reflected the fastest supplier delivery performance since April 2009, when it registered 45.5 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index was down 6.1 percentage points in March, to 59.5 percent. The Inventories Index grew in March for the second consecutive month after contracting for eight months in a row; the reading of 52.8 percent is up 2.2 percentage points from February’s figure of 50.6 percent. The Inventory Sentiment Index (57.9 percent, up 2.6 percentage points from February’s reading of 55.3 percent) expanded for the fourth consecutive month after a four-month period of contraction.

“Thirteen industries reported growth in March. The Services PMI®, by being above 50 percent for a third month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 158 months.”

Nieves continues, “There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”
emphasis added

The PMI was much lower than expected and the employment index declined.

by Calculated Risk on 4/05/2023 08:48:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $70.5 billion in February, up $1.9 billion from $68.7 billion in January, revised.

February exports were $251.2 billion, $6.9 billion less than January exports. February imports were $321.7 billion, $5.0 billion less than January imports.
emphasis added

Click on graph for larger image.

Both exports and imports decreased in February.

Exports are up 8% year-over-year; imports are up 1% year-over-year.

Both imports and exports decreased sharply due to COVID-19 and then bounced back - but imports have been decreasing recently.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Note that net, exports of petroleum products are positive.

The trade deficit with China decreased to $19.0 billion in January, from $30.7 billion a year ago.

The trade deficit was larger than the consensus forecast.

by Calculated Risk on 4/05/2023 08:19:00 AM

From ADP: ADP National Employment Report: Private Sector Employment Increased by 242,000 Jobs in February; Annual Pay was Up 7.2%

Private sector employment increased by 145,000 jobs in March and annual pay was up 6.9 percent year-over-year, according to the March ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”)
...
“Our March payroll data is one of several signals that the economy is slowing,” said Nela Richardson, chief economist, ADP. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”
emphasis added

This was below the consensus forecast of 200,000. The BLS report will be released Friday, and the consensus is for 240 thousand non-farm payroll jobs added in March.

by Calculated Risk on 4/05/2023 07:00:00 AM

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

Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 31, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week and was 59 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 35 percent lower than the same week one year ago.

“Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season. After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Additionally, refinance application volume continues to be quite low. Although the mortgage rate for conforming balance loans declined by five basis points over the week to 6.40 percent, the mortgage rate for jumbo loans increased by nine basis points to 6.36 percent. While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined. In recent years, most jumbo loans have been kept on depository balance sheets.”

Added Fratantoni: “At the entry-level segment of the market, purchase applications for both FHA and VA loans decreased last week. We do expect strong demand from first-time homebuyers over the next several years given the large number of millennials hitting peak first-time homebuyer age, but affordability remains a real challenge in this environment.”
..
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.40 percent from 6.45 percent, with points decreasing to 0.59 from 0.62 (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 35% year-over-year unadjusted.  

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

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022.

by Calculated Risk on 4/04/2023 09:17:00 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 8:15 AM, The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 200,000 payroll jobs added in March, down from 242,000 added in February.

• At 8:30 AM, Trade Balance report for February from the Census Bureau. The consensus is the trade deficit to be $68.7 billion.  The U.S. trade deficit was at $68.3 billion in January.

• At 10:00 AM, the ISM Services Index for March.

by Calculated Risk on 4/04/2023 05:04:00 PM

From Moody’s Analytics Senior Economist Lu Chen and economist Nick Luettke: Apartment temporarily oversupplied, Office approaching peak of vacancy, and Retail remained flat

Demand for office space extended its downward trend in Q1 as companies adjusted to uniquely designed hybrid models and strategically consolidated real estate space to improve operating margins. At the national level, more than 5 million square feet (sqft) was released back to the market this quarter. Meanwhile, construction slowed further with just over 3 million sqft of new space delivered in Q1. Vacancy rose to 19.0%, up 20 bps from a quarter-ago due to oversupplied stock and exceeding the pandemic peak of 18.5%. Office vacancies rose for the 5th consecutive quarter, another step closer to its historic peak of 19.3% in 1991. Asking rents increased by 0.4% in Q1 despite the rise in vacancies, likely an outcome of inflationary pressures.

The pandemic has accelerated market trends regarding how and where we work. Hybrid models have readily become adopted, though significant portions of the market remain either entirely in person or remote. With individual firms adopting competing models for specific business needs, a universal standard has yet to emerge. 2023 is poised to be a year of adaptation, or even innovation, as firms weigh their choices among location, size, and amenities given increased availability.
emphasis added

Moody's reported the office vacancy rate was at 19.0% in Q1 2023, up from 18.8% in Q4 2022, and up from 18.1% in Q1 2022. 

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

The office vacancy rate was elevated prior to the pandemic and moved up during the pandemic.

This was the highest vacancy rate for offices since 1992 (following the S&L crisis).  NOTE: This says nothing about how many people are in the offices (related to the increase in work-from-home), just whether or not the office space is leased.

And from Moody's on Retail:

Retail suffered the most when the Great Financial Crisis (GFC) hit in 2008. Oversupply and three years of negative retail net absorption increased the average vacancy from 6-7% to 10-11%. Since then, several factors weakened supply growth: developers became more cautious, demand dampened with the rise of e-commerce, and consumer preferences gradually changed. COVID-19 and the upsurge of remote work exacerbated retail woes, but this shock did not cause a freefall similar to the GFC because the sector was stumbling in the decade leading up to the pandemic. According to the latest Census Advanced Monthly Retail Trade Survey, total sales in February were up 5.4% from the same period a year ago, with food service/drinking places and general merchandise stores enjoying double-digit growth.

Supported by resilient consumer spending, neighborhood and community shopping center performance remained stable. However, with consumer confidence index starting to show subtle changes in consumers’ spending plan with less incentive towards service and stationary spending over the next six months, new retail construction and net absorption both came in light for the first quarter of the year. Vacancy flatlined at 10.3% over the past four quarters. Asking/effective rents were up slightly by 0.2%/0.3% in Q4 and remained in the $21/$18-per-sqft range, a level unchanged since 2018.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.3% in Q1 2023, unchanged from 10.3% in Q4 2022, and down from 10.4% in Q1 2022. For strip malls, the vacancy rate peaked during the pandemic at 10.6% in both Q1 and Q2 2021.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). 

Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Effective rents have been mostly unchanged for strip malls for 4+ years.

All vacancy data courtesy of Moody’s Analytics

by Calculated Risk on 4/04/2023 01:00:00 PM

The BEA released their estimate of vehicle sales for March this morning.

This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the March 2023 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 all-time 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 484 thousand SAAR in March, down from an upwardly revised 516 thousand in February, and up 7% from 464 thousand SAAR in March 2022.  

Usually, heavy truck sales decline sharply prior to a recession.   Sales were solid in March.

by Calculated Risk on 4/04/2023 11:15:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Moody's: Multifamily Demand "Softened notably over the past few quarters"

A brief excerpt:

The big story here is that demand for apartments has softened recently, rents are falling in some areas, and there are a large number of apartments currently under construction that are expected to be delivered this year.

From Moody’s Analytics Senior Economist Lu Chen and economist Nick Luettke: Apartment temporarily oversupplied, Office approaching peak of vacancy, and Retail remained flat

The tide has been gradually shifting for the multifamily sector. ... Multifamily demand has softened notably over the past few quarters with net absorption even teasing slightly below zero in the first quarter of 2023. ... Vacancy ticked up 13 basis-point (bps) to end Q1 at 4.71%. This was the biggest jump over the past two years, which pushed the current vacancy over the pre-pandemic level of 4.68%.

Compared to year end 2022, rent declines became more widespread in the first quarter, with 60 primary metros recording negative market rent growth ranging from -0.1% to -6.4%.

...Moody’s Analytics (Reis) reported that the apartment vacancy rate was at 4.7% in Q1 2023, up from 4.6% in Q4 2022, and down from a pandemic peak of 5.4% in both Q1 and Q2 2021.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999).  Note: Moody’s Analytics is just for large cities.

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

by Calculated Risk on 4/04/2023 10:07:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings decreased to 9.9 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 6.2 million and 5.8 million, respectively. Within separations, quits (4.0 million) edged up, while layoffs and discharges (1.5 million) decreased.
emphasis added

The following graph shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for February the employment report this Friday will be for March.

Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are usually pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

The spike in layoffs and discharges in March 2020 is labeled, but off the chart to better show the usual data.

Jobs openings decreased in February to 9.9 million from 10.6 million in January.

The number of job openings (black) were down 14% year-over-year. 

Quits were down 7% year-over-year. These are voluntary separations. (See light blue columns at bottom of graph for trend for "quits").

by Calculated Risk on 4/04/2023 08:00:00 AM

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

From CoreLogic: US Annual Home Price Growth Continues Single-Digit Slide in February, CoreLogic Reports

CoreLogic® ... today released the CoreLogic Home Price Index (HPI™) and HPI Forecast™ for February 2023.

While annual U.S home price growth rose for the 133rd straight month in February, the 4.4% increase was the lowest recorded since 2019. Eight states and districts recorded annual home price losses, with much of the depreciation seen in the relatively expensive Western U.S., including California, Idaho, Oregon, Washington and Utah.

Tech company layoffs have likely affected housing demand on the West Coast, However, as noted in the latest CoreLogic S&P Case-Shiller Index, home prices gains are holding steady in some large East Coast metros, as workers return to offices and buyer demand renews in areas that saw relatively less appreciation during the pandemic. Areas in the Southern U.S. are also holding up well given current market conditions.

“The divergence in home price changes across the U.S. reflects a tale of two housing markets,” said Selma Hepp, chief economist at CoreLogic. “Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of undersupply. The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction.”

“But while housing market challenges remain, particularly in light of mortgage rate volatility and the ongoing banking turmoil,” Hepp continued, “pent-up homebuyer demand is responding favorably to lower rates in many markets. This trend holds true even in the West, leading to a solid monthly gain in home prices in February. U.S. home prices rose by 0.8% in February, double the month-over-month increase historically seen and indicating that prices in most markets have already bottomed out.”
...
U.S. home prices (including distressed sales) increased by 4.4% year over year in February 2023 compared to February 2022. On a month-over-month basis, home prices increased by 0.8% compared with January 2023.
emphasis added

by Calculated Risk on 4/03/2023 09:23:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Fairly Close to Two Month Lows

Mortgage rates moved lower today as investors reacted to economic data that showed contraction in the manufacturing sector. ... After the data was released, the bond market swung from negative to positive territory. ...

With that, the average mortgage lender was able to drop rates to levels just a hair higher than the lows from March 23-24. You'd have to go back to February 3rd to see anything lower. With today being April 3rd, that means we're right on the doorstep of 2 month lows. [30 year fixed 6.44%]
emphasis added

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

• At 10:00 AM, Job Openings and Labor Turnover Survey for February from the BLS.

by Calculated Risk on 4/03/2023 06:37:00 PM

Wards Auto released their estimate of light vehicle sales for March: Greater Availability, Rising Incentives Lead March U.S. Light-Vehicle Sales to 9% Gain (pay site).

Wards Auto estimates sales of 14.82 million SAAR in March 2023 (Seasonally Adjusted Annual Rate), essentially unchanged from the February sales rate, and up 9.3% from March 2022. 

Click on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for March (red).

The impact of COVID-19 was significant, and April 2020 was the worst month.  After April 2020, sales increased, and were close to sales in 2019 (the year before the pandemic).  However, sales decreased in 2021 due to supply issues.  It appears the "supply chain bottom" was in September 2021.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Sales in March were close to the consensus forecast.

by Calculated Risk on 4/03/2023 04:21:00 PM

The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are also not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

DISCLAIMER: This is an unofficial list, the information is from public sources only, and while deemed to be reliable is not guaranteed. No warranty or representation, expressed or implied, is made as to the accuracy of the information contained herein and same is subject to errors and omissions. This is not intended as investment advice. Please contact CR with any errors.

NOTE: I'm no longer updating the spreadsheet.

Here are the quarterly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List through March 31, 2023. Since the last update at the end of December 2022, the list decreased by three to 46 institutions after three removals. Assets decreased by $1.7 billion to $49.3 billion, about one-third of the drop was because of a $787 million decline from updated asset figures through December 31, 2022. A year ago, the list held 54 institutions with assets of $60.9 billion. Removals during the quarter because of action termination included Carver Federal Savings Bank, New York, NY ($713 million) and The City National Bank of Colorado City, Colorado City, TX ($237 million). First Savanna Savings Bank, Savanna, IL ($9 million) found its way off this list through a voluntary merger.

With the conclusion of the fourth quarter, we bring an updated transition matrix to detail how banks are transitioning off the Unofficial Problem Bank List. Since we first published the Unofficial Problem Bank List on August 7, 2009 with 389 institutions, 1,789 institutions have appeared on a weekly or monthly list since then. Only 2.6 percent of the banks that have appeared on a list remain today as 1,743 institutions have transitioned through the list. Departure methods include 1,031 action terminations, 411 failures, 282 mergers, and 19 voluntary liquidations. Of the 389 institutions on the first published list, only 3 or less than 1.0 percent, still have a troubled designation more than ten years later. The 411 failures represent 23 percent of the 1,789 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

On February 28, 2023, the FDIC released fourth quarter results and provided an update on the Official Problem Bank List. While FDIC did not make a comment within its press release on the Official Problem Bank List, they provided details in an attachment that listed 39 institutions with assets of $47 billion. These figures were notable lower from last quarter when the FDIC said the Official Problem List had 42 institutions with assets of $164 billion. Hence during the quarter, the large unknown depository was removed. The $116 billion decline in assets provides some clues as to that unknown depository. At December 31, 2022, there were three depositories -- UBS Bank USA ($121 billion); USAA Federal Savings Bank ($111 billion); and First-Citizens Bank & Trust Company ($109 billion). Since First-Citizens Bank & Trust Company, it was likely not them as they are a SEC registrant and an enforcement action would be considered a material event requiring disclosure. Given that the parent of UBS Bank just acquired Credit Suisse, would they have been approved to complete that acquisition with a troubled subsidiary? Emergencies do cause the authorities to approve transactions that would not be permitted in stable periods. USAA Federal Savings Bank appears to be owned by its policyholders; if so, then it would not be subject to SEC disclosure rules. A few names, some details on their circumstances, we will let you handicap who the unknown whale was.

Since we last checked in with, there has been another banking sector dislocation event. There have been three bank failures – Silvergate Bank, Silicon valley Bank, and Signature Bank. Some common risk characteristics of the failed banks include a deposit base that was mostly uninsured (“hot money’), lack of diversification (industry, business line, and customer concentrations), and poorly managed liquidity position (illiquid securities that could not be sold). The large volume of uninsured deposits triggered runs at other depositories, forcing a systemic risk declaration to protect the uninsured depositors at Signature Bank and Silicon Valley Bank. Hearings this past week on the Hill exposed failures in the supervisory process and regulatory framework. Informed readers here know that before a bank fails, the risks should be identified by regulators and a corrective program be in place. In short, the bank should be operating under a formal enforcement action before it goes belly up. That was not the case here, as all three banks went straight to failure bypassing the desired orderly resolution. These failures messy and very disorderly. Hopefully, some prudent reforms are put in place to prevent a re-occurrence.

A couple of comments: Regulators never disclosed the "whale" that added close to $116 billion to problem assets to the official problem list but has now been removed from the official list.  And none of the recently failed banks had formal enforcement actions prior to failure.

by Calculated Risk on 4/03/2023 11:14:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Black Knight Mortgage Monitor: Home Prices Increased Slightly in February; Prices Up 1.9% YoY

A brief excerpt:

Here is a graph of the Black Knight HPI. The index is still up 1.9% year-over-year and will likely turn negative YoY soon.

• A modest easing of affordability in January and early February along with tightening inventory levels drove home prices slightly higher

• On an adjusted basis, prices were up 0.16% for the month, the strongest single month gain since May of last year, while non-adjusted they were up 0.68%

• The headline annual home price growth rate fell by 164 bps in the month to 1.94%, the first time we’ve seen annual home price growth below 2% since early 2012

• Price growth is expected to cross over into negative territory by April but may return above 0% before the end of the year if inventory challenges persist and interest rates ease

• All in, home prices nationally are now down 2.6% from their 2022 peak, marginally improved from 2.7% in January
emphasis added

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

by Calculated Risk on 4/03/2023 10:21:00 AM

From the Census Bureau reported that overall construction spending decreased:

Construction spending during February 2023 was estimated at a seasonally adjusted annual rate of $1,844.1 billion, 0.1 percent below the revised January estimate of $1,845.4 billion. The February figure is 5.2 percent above the February 2022 estimate of $1,753.1 billion.
emphasis added

Private spending was "virtually unchanged" and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $1,453.2 billion, virtually unchanged from the revised January estimate of $1,453.6 billion. ...

In February, the estimated seasonally adjusted annual rate of public construction spending was $391.0 billion, 0.2 percent below the revised January estimate of $391.8 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Residential (red) spending is 9.8% below the recent peak.

Non-residential (blue) spending is at a new peak.

Public construction spending is close to the recent peak.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is down 5.7%. Non-residential spending is up 19.4% year-over-year. Public spending is up 12.8% year-over-year.

This was at consensus expectations of a 0.1% decrease in spending; however, construction spending for the previous two months was revised up.

by Calculated Risk on 4/03/2023 10:04:00 AM

(Posted with permission). The ISM manufacturing index indicated contraction. The PMI® was at 46.3% in March, down from 47.7% in February. The employment index was at 46.9%, down from 49.1% last month, and the new orders index was at 44.3%, up from 47.0%.

From ISM: Manufacturing PMI® at 46.3% March 2023 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in March for the fifth consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The March Manufacturing PMI® registered 46.3 percent, 1.4 percentage points lower than the 47.7 percent recorded in February. Regarding the overall economy, this figure indicates a fourth month of contraction after a 30-month period of expansion. The Manufacturing PMI® is at its lowest level since May 2020, when it registered 43.5 percent. The New Orders Index remained in contraction territory at 44.3 percent, 2.7 percentage points lower than the figure of 47 percent recorded in February. The Production Index reading of 47.8 percent is a 0.5-percentage point increase compared to February’s figure of 47.3 percent. The Prices Index registered 49.2 percent, down 2.1 percentage points compared to the February figure of 51.3 percent. The Backlog of Orders Index registered 43.9 percent, 1.2 percentage points lower than the February reading of 45.1 percent. The Employment Index continued in contraction territory, registering 46.9 percent, down 2.2 percentage points from February’s reading of 49.1 percent. The Supplier Deliveries Index figure of 44.8 percent is 0.4 percentage point lower than the 45.2 percent recorded in February; this is the index’s lowest reading since March 2009 (43.2 percent). The Inventories Index dropped into contraction at 47.5 percent, 2.6 percentage points lower than the February reading of 50.1 percent. The New Export Orders Index reading of 47.6 percent is 2.3 percentage points lower than February’s figure of 49.9 percent. The Imports Index continued in contraction territory at 47.9 percent, 2 percentage points below the 49.9 percent reported in February.”
emphasis added

This suggests manufacturing contracted in March.  This was below the consensus forecast. 

by Calculated Risk on 4/03/2023 08:18:00 AM

Altos reports that active single-family inventory was down 0.8% week-over-week. Inventory still hasn't bottomed seasonally!

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of March 31st, inventory was at 410 thousand (7-day average), compared to 413 thousand the prior week.   

Year-to-date, inventory is down 16.5%, and at the lowest point so far this year.

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

The red line is for 2023.  The black line is for 2019.  Note that inventory is up from the previous two years (the record low was in 2022), but still well below normal levels.

Inventory was up 62.2% compared to the same week in 2022 (last week it was up 64.3%), and down 50.8% compared to the same week in 2019 (last week down 50.2%). 

A key will be when inventory starts increasing in 2023 - not yet!

Mike Simonsen discusses this data regularly on Youtube.