by Calculated Risk on 12/11/2013 11:54:00 AM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation.

For Q3 2013, the Net Equity Extraction was minus $24 billion, or a negative 0.8% of Disposable Personal Income (DPI).  This is the smallest negative equity extraction since Q1 2008.

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $10.0 billion in Q3. This was the first increase in mortgage debt since Q1 2008. Since some mortgage debt is related to new home purchases, net negative equity extraction was still slightly negative in Q3.

The Flow of Funds report also showed that Mortgage debt has declined by over $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 12/11/2013 11:01:00 AM

Six weeks ago I wrote: Comment: Looking for Stronger Economic Growth in 2014. I listed several reasons for a positive outlook, and if anything, I'm a little more optimistic now.  Here are a few reasons:

1) The apparent budget deal takes a key downside risk off the table, and reduces the impact of the sequester.

2) Household balance sheets are in much better shape - and it appears that in the aggregate, household deleveraging is over.  The Fed just reported the first increase in total mortgage debt since Q1 2008.  See: Fed's Q3 Flow of Funds: Household Mortgage Debt increased slightly, First Mortgage Debt increase since Q1 2008, NY Fed: Household Debt increased in Q3, Delinquency Rates Improve, and Fed: Household Debt Service Ratio near lowest level in 30+ years

3) State and local government austerity is over (in the aggregate).

4) The housing recovery should continue. Housing has slowed recently (new home sales, housing starts), but the overall level is still very low and I expect further growth in 2014.

5) Commercial real estate (CRE) investment will probably make a small positive contribution in 2014.

Eliminating drags is important.  The drag from state and local governments is over. The drag from household deleveraging (in the aggregate) is ending. The threats of a government shutdown, not "paying the bills", and mindless austerity is over (assuming the budget deal is approved).  And  CRE investments are starting to appear.

All of these were impediments to growth over the last few years.

Yes, growth in the auto industry will slow in 2014, and housing has slowed recently (but I think we will see more growth in 2014).  However, overall it appears 2014 will probably be the best growth year for the recovery (the best was 2012 with 2.8% real GDP growth), and possibly the best year since Clinton was President.

by Calculated Risk on 12/11/2013 07:03:00 AM

From the MBA: Mortgage Applications Fall During Holiday-Shortened Week

Mortgage applications increased 1.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 6, 2013. The previous week’s results included an adjustment for the Thanksgiving holiday. ...

The Refinance Index increased 2 percent from the previous week and was 16 percent lower than the week prior to Thanksgiving. The seasonally adjusted Purchase Index increased 1 percent from one week earlier and was 3 percent lower than the week prior to Thanksgiving. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.61 percent, the highest rate since September, from 4.51 percent, with points decreasing to 0.26 from 0.38 (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 refinance index.

The refinance index is down sharply - and down 68% from the levels in early May.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 8% from a year ago.

Note: It appears these small independent lenders (not included in the MBA survey) are focusing on the purchase market.  A result of this change in market share is the Purchase Index is probably understating the increase in purchase activity.

by Calculated Risk on 12/10/2013 08:10:00 PM

Some good news ...

From the NY Times: Congressional Negotiators Reach Budget Deal

The agreement eliminates about $65 billion in across-the-board domestic and defense cuts while adding an additional $25 billion in deficit reduction by extending a 2 percent cut to Medicare through 2022 and 2023, two years beyond the cuts set by the Budget Control Act of 2011.
...
Under the agreement, military and domestic spending for the current fiscal year that is under the annual discretion of Congress would rise to just over $1 trillion, from the $967 billion level it would hit if spending cuts known as sequestration were imposed next month. Spending would be capped at $1 trillion in fiscal year 2015 as well.

And from the WSJ: House, Senate Negotiators Announce Budget Deal

Revenues to fund the higher spending would come from changes to federal employee and military pension programs, and higher fees for airline passengers, among other sources. An extension of long-term unemployment benefits, sought by Democrats, wasn't included.

In 2013, the key downside risk to the economy was Congress (specifically the House), and unfortunately they delivered. Hopefully this eliminates that risk for 2014.

On the economics, the sequester cuts were a disaster (they probably hurt the economy more than it helped reduce the deficit), so reducing the sequester cuts for 2014 is a positive. I'd like to see an extension of emergency unemployment benefits for another 6 months or a year, but that isn't included in this deal.

The bottom line: Although this deal was expected (and I expect the bill to pass), this is another reason to be optimistic about 2014. Also - even though Fed officials will deny it - I think this increases the odds of the Fed tapering in December or January 2014.

by Calculated Risk on 12/10/2013 05:54:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in November.  First, from Lawler on November sales:

"While I do not have enough reports to produce an accurate estimate of existing home sales for November, reports I’ve seen so far suggest that home sales declined again on a seasonally adjusted basis last month."

From CR: This is just a few markets, but total "distressed" share is down significantly, mostly because of a decline in short sales.  Foreclosure are down in most areas too.


The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back in markets the share of all cash buyers will probably decline.

In general it appears the housing market is slowly moving back to normal.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Nov-13	Nov-12	Nov-13	Nov-12	Nov-13	Nov-12	Nov-13	Nov-12
Las Vegas	21.0%	41.2%	7.0%	10.7%	28.0%	51.9%	43.7%	52.7%
Reno	17.0%	41.0%	6.0%	9.0%	23.0%	50.0%
Phoenix	7.8%	23.2%	8.0%	12.9%	15.8%	36.1%
Mid-Atlantic	7.5%	11.9%	8.1%	8.7%	15.7%	20.6%	19.6%	20.0%
Tucson							32.2%	33.8%
Toledo							37.2%	40.9%
Omaha							21.6%	19.8%
Spokane			16.0%	9.1%
Memphis*			20.4%	24.4%
Springfield IL			17.0%	15.8%
*share of existing home sales, based on property records