by Calculated Risk on 1/29/2014 07:01:00 AM

From the MBA: Mortgage Applications Essentially Flat in Latest MBA Weekly Survey

Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 24, 2014. The results include an adjustment to account for the Martin Luther King, Jr. holiday. ...

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.52 percent, the lowest rate since the week ending November 29, 2013, from 4.57 percent, with points increasing to 0.40 from 0.36 (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 68% from the levels in early May.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 12% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.

by Calculated Risk on 1/28/2014 08:42:00 PM

I expect the FOMC to announce additional tapering on Wednesday. Merrill Lynch economists think the Fed will change their forward guidance soon, but probably not at this meeting:

The market widely expects the Fed to continue to taper by US$10bn at its January meeting, and we do not expect it to disappoint. This action would bring its purchase pace to US$65bn per month (US$35bn Treasuries and US$30bn MBS). Less clear is what the Fed intends to do with its forward guidance, particularly the 6.5% unemployment threshold. As the unemployment rate has been falling for largely the "wrong" reasons, we anticipate the FOMC will drop this threshold altogether, in favor of vaguer but more robust qualitative guidance on the broad labor market conditions that would warrant a rate hike. This change likely will be made at one of the next few meetings - possibly this week. More troublesome for the Fed is the persistently low inflation rate; we expect some strengthening of guidance to suggest that the FOMC will not hike rates until inflation is much closer to the Fed's longer-run 2% target. However, that language change may be more likely later this year.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 2:00 PM, the FOMC Meeting Announcement will be released. No change in interest rates is expected (for a long time). However the FOMC is expected to reduce QE3 asset purchases by $10 billion per month at this meeting.

by Calculated Risk on 1/28/2014 06:48:00 PM

The Case-Shiller house price indexes for November were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ...

From Zillow: Case-Shiller Forecast: Apprieciation Remains Strong

The Case-Shiller data for November came out this morning, and based on this information and the December 2013 Zillow Home Value Index (ZHVI, released January 22) we predict that next month’s Case-Shiller data (December 2013) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.5 and 13.6 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from November to December will be 0.7 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for December will not be released until Tuesday, Feb. 25.

The Zillow Home Value Index continues to show slow moderation in home value appreciation, as well as a fair amount of volatility in home value growth as the housing recovery continues. Case-Shiller indices have shown very little slowing in monthly appreciation and have not yet recorded monthly declines (at least not in their seasonally-adjusted monthly numbers). Even when the Case-Shiller indices do begin to show monthly depreciation in some areas, they will continue to show an inflated picture of home prices, especially when considering year-over-year growth. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed.

In contrast, the ZHVI does not include foreclosure resales and shows home values for December 2013 up 6.4 percent from year-ago levels. More on the differences between a repeat sales index, including the Case-Shiller indices, and an imputed hedonic index like the ZHVI can be found here. We expect home value appreciation to continue to moderate through the end of 2013 and into 2014, rising 4.8 percent between December 2013 and December 2014 — a rate much more in line with historic appreciation rates.

The following table shows the Zillow forecast for the December Case-Shiller index.

Zillow December Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Dec 2012	158.60	159.28	146.08	146.75
Case-Shiller (last month)	Nov 2013	180.15	179.7	165.80	165.41
Zillow Forecast	YoY	13.6%	13.6%	13.5%	13.5%
	MoM	0.0%	0.7%	0.0%	0.7%
Zillow Forecasts1		180.2	180.9	165.8	166.6
Current Post Bubble Low		146.45	149.67	134.07	136.91
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		23.0%	20.9%	23.7%	21.7%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 1/28/2014 03:06:00 PM

From housing economist Tom Lawler:

D.R. Horton, the largest US home builder, reported that net home orders in the quarter ended December 31, 2013 totaled 5,454, up 3.7% from the comparable quarter of 2012, and up “contra-seasonal” 5.7% from the previous quarter’s weak level. The average net order price last quarter was $275,600, up 10.3% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 23% last quarter, up slightly from 22% a year ago. Home deliveries totaled 6,188 last quarter, up 19.4% from the comparable quarter of 2012, at an average home sales price of $263,542 up 11.6% from a year ago. The company’s order backlog at the end of last year was 7,684, up 5.0% from the end of 2012, at an average order price of $275,052, up 14.4% from a year earlier. The company said that its average community count last quarter was up 13% from the comparable quarter of 2012.

Horton noted in its press release that its weekly sales pace “accelerated” in January. In its press conference, officials noted that the strong home price gains last year reflected both increased pricing power in most of its markets and a higher mix of larger homes and sales to “move-up” buyers. Officials said that of the purchase mortgages closed by Horton’s mortgage subsidiary last quarter, 41% were to first-time home buyers, down from 50% in the comparable quarter of 2012 – suggesting that sales to first-time home buyers were weak last quarter.

According to officials, Horton’s gross margin last quarter was at its highest level since 2006. Officials were “very optimistic” about the 2014 “spring” (really winter/spring) selling season, and said that they were “well-positioned” from a community count and “spec inventory” position to take advantage of strong sales. Based on these expectations officials said they expected to “hold” these exceptionally high margins, but officials noted that home price gains in 2014 were likely to be much more modest in 2014. Given Horton’s elevated margins and “strong” spec inventory position, weaker-than-expected sales over the next few months could lead to flat to slightly lower home prices.

In response to a question in the Q&A session, a Horton official noted that home prices in Phoenix, which increased about 25% last year, had begun to “plateau,” and the official expected prices in Phoenix this year to be flat to slightly down.

At the end of December Horton owned or controlled 175,000 lots, down slightly from 177,300 at the end of 2012, but up significantly from 120,600 at the end of 2011.
emphasis added

by Calculated Risk on 1/28/2014 12:22:00 PM

I've been hearing some reports of a slowdown in house price increases (more than the usual seasonal slowdown), but this slowdown in price increases is not showing up yet in the Case-Shiller index.  I expect to see smaller year-over-year price increases going forward.

There was a small Not Seasonally Adjusted decline in November, but that decline was smaller than usual - and prices are still increasing fairly quickly on a seasonally adjusted basis.


I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (about 38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).


Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 13.7% year-over-year in November

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2004 levels (and also back up to Q3 2008), and the Case-Shiller Composite 20 Index (SA) is back to June 2004 levels, and the CoreLogic index (NSA) is back to October 2004.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q1 2001 levels, the Composite 20 index is back to May 2002, and the CoreLogic index back to May 2002.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q4 2000 levels, the Composite 20 index is back to Aug 2002 levels, and the CoreLogic index is back to February 2003.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 44% above January 2000 (44% nominal gain in 14 years).

These are nominal prices, and as I noted above real prices (adjusted for inflation) are up about 38% since January 2000 - so the increase in Phoenix from January 2000 until now is just a little above the change in overall prices due to inflation.

Two cities - Denver (up 45% since Jan 2000) and Dallas (up 32% since Jan 2000) - are at new highs (no other Case-Shiller Comp 20 city is very close).    Denver is up slightly more than inflation over that period, and Dallas slightly less.  Detroit prices are still below the January 2000 level.