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Finance and Economics

Updated: 2016-10-25T13:33:23.018-04:00


Real Prices and Price-to-Rent Ratio in August


Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.3% year-over-year in AugustThe year-over-year increase in prices is mostly moving sideways now around 5%. In August, the index was up 5.3% YoY.In the earlier post, I graphed nominal house prices, but it is also 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 $275,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being only 1.6% below the bubble peak (seasonally adjusted).   However, in real terms, the National index is still about 16.2% below the bubble peak.Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through August) in nominal terms as reported.In nominal terms, the Case-Shiller National index (SA) is back to December 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to June 2005 levels, and the CoreLogic index (NSA) is back to August 2005. Real House PricesThe 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.CPI less Shelter has declined over the last two years pushing up real house prices.In real terms, the National index is back to February 2004 levels, the Composite 20 index is back to October 2003, and the CoreLogic index back to January 2004. In real terms, house prices are back to late 2003 / early 2004 levels.Price-to-RentIn 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 August 2003 levels, the Composite 20 index is back to April 2003 levels, and the CoreLogic index is back to July 2003.In real terms, and as a price-to-rent ratio, prices are back to late 2003  - and the price-to-rent ratio maybe moving a little more sideways now.[...]

Case-Shiller: National House Price Index increased 5.3% year-over-year in August


S&P/Case-Shiller released the monthly Home Price Indices for August ("August" is a 3 month average of June, July and August prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Price Gains Continues in August According to the S&P CoreLogic Case-Shiller Indices
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.3% annual gain in August, up from 5.0% last month. The 10-City Composite posted a 4.3% annual increase, up from 4.1% the previous month. The 20-City Composite reported a year-over-year gain of 5.1%, up from 5.0% in July.
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.5% in August. Both the 10-City Composite and the 20-City Composite posted a 0.4% increase in August. After seasonal adjustment, the National Index recorded a 0.6% month-over-month increase, and both the 10-City Composite and the 20-City Composite reported 0.2% month-over-month increases. After seasonal adjustment, 14 cities saw prices rise, two cities were unchanged, and four cities experienced negative monthly prices changes.
emphasis added
(image) Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 10.9% from the peak, and up 0.2% in August (SA).

The Composite 20 index is off 8.9% from the peak, and up 0.2% (SA) in August.

The National index is off 1.6% from the peak (SA), and up 0.6% (SA) in August.  The National index is up 33.0% from the post-bubble low set in December 2011 (SA).

(image) The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.3% compared to August 2015.

The Composite 20 SA is up 5.1% year-over-year.

The National index SA is up 5.3% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.(image)

Black Knight: Mortgage "Foreclosure Rate Falls to Nine-Year Low" in September


From Black Knight: Black Knight’s First Look at September Mortgage Data: Post-‘Brexit’ Prepay Activity Remains Strong; Foreclosure Rate Falls to Nine-Year Low
• Despite declining from August, September saw the third highest prepayment rate in three years

  • September’s less-than-one-percent seasonal increase in the delinquency rate was relatively mild by historical standards

  • At one percent, the rate of all mortgages that are in active foreclosure fell to its lowest point in nine years

  • Non-current mortgage rates continue to struggle in oil states, with Alaska and Wyoming seeing the largest increases over the past six months
According to Black Knight's First Look report for September, the percent of loans delinquent increased slightly in September compared to August, and declined 12.2% year-over-year.

The percent of loans in the foreclosure process declined 3.4% in September and were down 31.2% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.27% in September, up from 4.24% in August.

The percent of loans in the foreclosure process declined in September to 1.00%.

The number of delinquent properties, but not in foreclosure, is down 292,000 properties year-over-year, and the number of properties in the foreclosure process is down 228,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for September on November 7th.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
In Foreclosure1.00%1.04%1.46%1.89%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,165,0002,151,0002,457,0002,849,000
Number of properties in foreclosure pre-sale inventory:509,000527,000737,000951,000
Total Properties2,674,0002,678,0003,194,0003,800,000

Lawler: Table of Distressed Sales and All Cash Sales for Selected Cities in September


Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in September.On distressed: Total "distressed" share is down year-over-year in most of these markets. Short sales and foreclosures are down in most of these areas.The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.   Short Sales ShareForeclosure Sales Share Total "Distressed" ShareAll Cash ShareSep-2016Sep-2015Sep-2016Sep-2015Sep-2016Sep-2015Sep-2016Sep-2015Las Vegas4.6%6.8%6.0%7.1%10.6%13.9%26.5%26.8%Reno**3.0%3.0%2.0%3.0%5.0%6.0%    Phoenix1.7%2.4%2.0%3.5%3.7%5.9%20.2%23.1%Sacramento1.4%2.9%3.1%4.1%4.5%6.9%16.3%17.6%Minneapolis1.1%1.9%4.3%6.6%5.4%8.5%12.8%12.5%Mid-Atlantic3.1%3.9%8.9%11.1%11.9%14.9%16.5%17.5%Florida SF2.3%3.5%7.8%16.0%10.1%19.4%28.0%34.1%Florida C/TH1.6%2.1%7.0%14.3%8.6%16.4%55.8%59.7%Miami MSA SF3.3%5.1%9.4%18.6%12.7%23.7%28.5%33.2%Miami MSA CTH2.7%2.7%9.5%18.0%12.1%20.7%58.1%63.0%Chicago (city)        12.1%17.5%    Spokane        7.8%7.8%    Northeast Florida        12.9%23.4%    Orlando            31.3%35.5%Toledo            28.0%26.5%Tucson            22.2%25.9%Peoria            20.5%22.3%Georgia***            20.8%22.3%Omaha            15.5%18.1%Pensacola            29.1%31.4%Rhode Island        11.1%9.0%    Richmond VA    8.7%10.5%    18.4%15.2%Memphis    8.8%13.1%        Springfield IL**            9.7%10.3%*share of existing home sales, based on property records**Single Family Only***GAMLS[...]

DOT: Vehicle Miles Driven increased 3.4% year-over-year in August


The Department of Transportation (DOT) reported:
Travel on all roads and streets changed by 3.4% (9.3 billion vehicle miles) for August 2016 as compared with August 2015.

Travel for the month is estimated to be 284.9 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for August 2016 is 268.6 billion miles, a 2.5% (6.5 billion vehicle miles) increase over August 2015. It also represents a 0.8% decrease (-2.2 billion vehicle miles) compared with July 2016.
The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors.

The rolling 12 month total is moving up - mostly due to lower gasoline prices - after moving sideways for several years.

(image) Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January 2015.

The second graph shows the year-over-year change from the same month in the previous year.  Miles driven are up 3.4% year-over-year.

(image)  In August 2016, gasoline averaged $2.28 per gallon according to the EIA.  That was down from August 2015 when prices averaged $2.73 per gallon.

Gasoline prices aren't the only factor - demographics are also important. However, with lower gasoline prices, miles driven on a rolling 12 month basis, is setting a new high each month.(image)

WSJ: "Retailers Rushed to Hire for Holidays"


From the Eric Morath at the WSJ: Retailers Rushed to Hire for Holidays, a Sign of Tight Labor Market
Retailers geared up to hire holiday-season workers in August this year, an unusually early start showing how competition has intensified for temporary help in a tight labor market.

Data from job-search site shows retailers, and the warehouse and logistics firms they compete with for seasonal labor, started searching for temporary workers a month earlier than in recent years. This suggests retailers and other firms “anticipate stronger consumer demand and expect that it will be harder to find the people they want to hire,” said Indeed economist Jed Kolko.

Last year, more than one in four retail workers hired in the fourth quarter of 2015 started their jobs in October, the highest share on records back to the 1930s.
Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

(image) Click on graph for larger image.

This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels.

Note that retailers have been hiring earlier with more seasonal hires in October (red).

Based on the information in the WSJ article, it appears seasonal hiring will be at record levels in October this year.


Chicago Fed "Economic Growth Picked Up in September"


From the Chicago Fed: Economic Growth Picked Up in September
Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to –0.14 in September from –0.72 in August. All four broad categories of indicators that make up the index increased from August, but in September, all four categories made negative contributions to the index for the second straight month.

The index’s three-month moving average, CFNAI-MA3, edged down to –0.21 in September from –0.14 in August. September’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

(image) Click on graph for larger image.

This suggests economic activity was below the historical trend in September (using the three-month average).

According to the Chicago Fed:
What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Sunday Night Futures


Schedule for Week of Oct 23, 2016

• At 8:30 AM ET, the Chicago Fed National Activity Index for September. This is a composite index of other data.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures and DOW futures are up slightly (fair value).

Oil prices were mixed over the last week with WTI futures at $50.67 per barrel and Brent at $51.61 per barrel.  A year ago, WTI was at $44, and Brent was at $47 - so oil prices are UP about 10% to 15% year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.21 per gallon (close to unchanged from a year ago).  Gasoline prices will be up year-over-year soon.(image)

Vehicle Sales Forecasts: Sales Over 17 Million SAAR Again in October


The automakers will report October vehicle sales on Tuesday, November 1st.

Note:  There were 26 selling days in October 2016, down from 28 in October 2015.

From WardsAuto: Forecast: October Daily Sales to Reach 15-Year High
A WardsAuto forecast calls for October U.S. light-vehicle sales to reach a 17.8 million-unit seasonally adjusted annual rate, making it the seventh month this year to surpass 17 million.

A 17.8 million SAAR is greatly higher than the 17.3 million recorded year-to-date through September, but does not beat the 18.1 million result recorded in the same month last year.
emphasis added
From J.D. Power: New-Vehicle Retail Sales in October Slip; Sixth Monthly Decline of 2016
The SAAR for total sales is projected at 17.7 million units in October 2016, down from 18.1 million units a year ago.
This graph shows light vehicle sales since the BEA started keeping data in 1967.

(image) The dashed line is the September sales rate.

Sales for 2016 - through the first nine months - were up slightly from the comparable period last year.

After increasing significantly for several years following the financial crisis, auto sales are now mostly moving sideways.(image)

Schedule for Week of Oct 23, 2016


The key economic reports this week are the advance estimate of Q3 GDP and September New Home Sales.Also the Case-Shiller House Price Index for August will be released.For manufacturing, the October Richmond and Kansas City Fed manufacturing surveys will be released this week.----- Monday, Oct 24th -----8:30 AM ET: Chicago Fed National Activity Index for September. This is a composite index of other data.----- Tuesday, Oct 25th -----9:00 AM: FHFA House Price Index for August 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.5% month-to-month increase for this index.9:00 AM ET: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August prices.This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the July 2016 report (the Composite 20 was started in January 2000).The consensus is for a 5.1% year-over-year increase in the Comp 20 index for August. The Zillow forecast is for the National Index to increase 5.2% year-over-year in August.10:00 AM: Richmond Fed Survey of Manufacturing Activity for October.----- Wednesday, Oct 26th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.10:00 AM ET: New Home Sales for September from the Census Bureau. This graph shows New Home Sales since 1963. The dashed line is the August sales rate.The consensus is for an decrease in sales to 600 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 609 thousand in August.----- Thursday, Oct 27th -----8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 260 thousand the previous week.  Note: I expect some further impact on claims due to Hurricane Matthew.8:30 AM: Durable Goods Orders for September from the Census Bureau. The consensus is for a 0.2% increase in durable goods orders.10:00 AM: Pending Home Sales Index for September. The consensus is for a 1.0% increase in the index.10:00 AM: the Q3 Housing Vacancies and Homeownership from the Census Bureau.11:00 AM: Kansas City Fed Survey of Manufacturing Activity for October.----- Friday, Oct 28th -----8:30 AM ET: Gross Domestic Product, 3rd quarter 2016 (Advance estimate). The consensus is that real GDP increased 2.5% annualized in Q3.10:00 AM: University of Michigan's Consumer sentiment index (final for October). The consensus is for a reading of 88.5, up from the preliminary reading 87.9.[...]

"The Structural Factors Behind the Steady Fall in Labor Force Participation Rates of Prime Age Workers"


Here is some additional analysis on the labor force participation rate. Dr. Frank Lysy discusses the various reasons for the decline in the labor force participation rate for prime age workers - especially the multi-decade decline for prime working age men: The Structural Factors Behind the Steady Fall in Labor Force Participation Rates of Prime Age Workers. Here is the introduction:
Increasing attention has recently been directed to the decline in labor force participation rates observed for men over the last several decades, and for women since the late 1990s.  The chart above tracks this.  It has indeed been dubbed (for men) a “quiet catastrophe” in a new book by Nicholas Eberstadt titled “Men Without Work”.

The issue has been taken up by those both on the right and on the left.  Even President Obama, in one of the rare “By invitation” pieces that The Economist occasionally publishes, has highlighted the concern in an article under his name in last week’s issue (the issue of October 8).  President Obama treats it as one of “four crucial areas of unfinished business” his successor will need to address.  A chart similar to that above is shown.  President Obama notes that in 1953, just 3% of men between the ages of 25 and 54 were not working, while the figure today is 12% (that is, the labor force participation rate fell from 97% to 88%).  The share of women of the same age group not participating in the formal labor market has similarly been falling since 1999.

While Obama is careful in his wording not to say directly that all of this increase in those not working was due to “involuntary joblessness”, he does note that involuntary joblessness takes a devastating toll on those unable to find jobs.  This is certainly correct. The fundamental question, however, is to what degree do we know whether the rise has been involuntary, and to what degree has it risen due to possibly more benign factors with rational choices being made.
Dr. Lysy discusses the various reasons for the decline (disability, "Mr. Mom", more prime workers in school, etc.). (image)

Q3 GDP Forecasts


The advance GDP report for Q3 GDP will be released next Friday. The consensus is real GDP increased at a 2.5% Seasonally Adjusted Annual Rate in Q3.

From the Altanta Fed: GDPNow
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 2.0 percent on October 19, up from 1.9 percent on October 14.
emphasis added
From the NY Fed Nowcasting Report
The FRBNY Staff Nowcast stands at 2.2% for 2016:Q3 and 1.4% for 2016:Q4.
From Merrill Lynch:
We expect the first estimate of 3Q GDP to show growth of 2.5% qoq saar, an improvement from the 1.4% pace in 2Q and 0.8% gain in 1Q. Although consumer spending is expected to slow from the strong 4.3% increase in 2Q, we still expect a solid 2.6% increase in 3Q, owing to strong auto sales.
CR Note: Looks like real GDP growth  was around 2.0% to 2.5% in Q3.(image)

BLS: Unemployment Rates stable in 42 states in September


From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were significantly lower in September in 7 states, higher in 1 state, and stable in 42 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today.
New Hampshire and South Dakota had the lowest jobless rates in September, 2.9 percent each. Alaska had the highest unemployment rate, 6.9 percent.
emphasis added
(image) Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska, at 6.9%, had the highest state unemployment rate.  Note that the lowest unemployment rate in Alaska was 6.3%, so this is pretty close to the all time low.

(image) The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only four states and D.C are at or above 6% (dark blue). The states are Alaska (6.9%), New Mexico (6.7%),  Louisiana (6.4%),  D.C. (6.1%), and Mississippi (6.0%).


"Labor force participation: what has happened since the peak?"


Some interesting analysis on the Labor Force Participation Rate from economist Steven Hipple at the BLS: Labor force participation: what has happened since the peak? (ht Invictus).  Hipple discusses many of the trends we have discussed.  (see the paper for Hipple's discussion of these trends):
After rising steadily for more than three decades, the overall labor force participation rate peaked at 67.3 percent in early 2000 and subsequently fell to 62.7 percent by mid-2016. In recent years, the movement of the baby-boom population into age groups that generally exhibit low labor force participation has placed downward pressure on the overall participation rate.

From 2000 to 2015, the decline in participation occurred across most of the major demographic groups. Teenagers experienced the steepest drop in participation, which coincided with a rise in their school enrollment rate. Yet, labor force participation rates of both teenagers enrolled and not enrolled in school fell since 2000. Adults 20–24 years showed a decrease in labor force participation that was less steep than that of teenagers. The young adults least likely to participate in the labor force were those without a high school diploma, in particular young women, especially mothers.

The labor force participation of women 25–54 years also declined from 2000 to 2015. This decrease was most pronounced for women who did not attend college. Women with a college degree experienced a much smaller reduction in labor force participation. Since 2000, labor force participation of mothers with children under 18 years old has receded; the declines were larger among less-educated mothers.

The labor force participation of men 25–54 years continued to decline from 2000 to 2015. The decrease in participation among men with less education was greater than that of men with more education.

The labor force participation of men and women 55 years and older rose from 2000 to 2009 and subsequently leveled off. This plateau could be attributed partially to the fact that the oldest baby boomers reached age 62 in 2008 and became eligible for Social Security retirement benefits.
CR Note: As I've mentioned before, most of the decline in the participation rate was expected, and was due to demographics and other long term trends. (image)

NMHC: Apartment Market Tightness Index remained negative in October Survey


From the National Multifamily Housing Council (NMHC): Apartment Markets Retreat in the October NMHC Quarterly Survey
Apartment markets softened across all four indexes in the October 2016 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The Market Tightness (28), Sales Volume (42), Equity Financing (33) and Debt Financing (38) Indexes all landed below the breakeven level of 50 – showing weaker conditions from the previous quarter.

The growing supply of new apartments, primarily in the Class A space, appears to have finally reached a level to slow the historically high rent growth. Additionally, debt and equity markets are more discerning in terms of what deals they are ready to take on, including the continued slowing of available construction loans,”  said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Despite the softening due to the new development focus on Class A apartments, the overall fundamentals for apartments remain stable, indicated by the strong demand for Class B and C properties.”

The Market Tightness Index fell to 28, the lowest since July 2009 and the fourth quarter in a row showing declining conditions. Almost half of respondents (49 percent) reported looser conditions than three months ago. Likewise, only six percent noted tighter conditions. The remaining 45 percent reported no change at all.
emphasis added
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

This is the fourth consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to slow (the vacancy rate is generally creeping up too).(image)

A Few Comments on September Existing Home Sales


Earlier: Existing Home Sales increased in September to 5.47 million SAAR

Inventory remains a key issue. Here is a repeat of two paragraphs I wrote about inventory a few months ago:

I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 6.8% year-over-year in September). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

A key point: Some areas are seeing more inventory.   For example, there is more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.

I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

(image) Click on graph for larger image.

Sales NSA in September (red column) were the highest for September since 2006 (NSA).

Note that sales NSA are in the slower Fall period, and will really slow seasonally in January and February.(image)

Existing Home Sales increased in September to 5.47 million SAAR


From the NAR: First-time Buyers Steer Existing-Home Sales Higher in SeptemberTotal existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, hiked 3.2 percent to a seasonally adjusted annual rate of 5.47 million in September from a downwardly revised 5.30 million in August. After last month's gain, sales are at their highest pace since June (5.57 million) and are 0.6 percent above a year ago (5.44 million)....Total housing inventory at the end of September rose 1.5 percent to 2.04 million existing homes available for sale, but is still 6.8 percent lower than a year ago (2.19 million) and has now fallen year-over-year for 16 straight months. Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August.Click on graph for larger image.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in September (5.47 million SAAR) were 3.2% higher than last month, and were 0.6% above the September 2015 rate.The second graph shows nationwide inventory for existing homes.According to the NAR, inventory increased to 2.04 million in September from 2.01 million in August.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory. Inventory decreased 6.8% year-over-year in September compared to September 2015.   Months of supply was at 4.5 months in September. This was above consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...[...]

Weekly Initial Unemployment Claims increase to 260,000


Note: I expected some increase this week due to Hurricane Matthew.

The DOL reported:
In the week ending October 15, the advance figure for seasonally adjusted initial claims was 260,000, an increase of 13,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 246,000 to 247,000. The 4-week moving average was 251,750, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 249,250 to 249,500.

There were no special factors impacting this week's initial claims. This marks 85 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
The previous week was revised up.

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

(image) 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 251,750.

This was above than the consensus forecast of 250,000. The low level of claims suggests relatively few layoffs.(image)

Thursday: Existing Home Sales, Unemployment Claims, Philly Fed Mfg


Tonight (Wednesday) from 9:00 PM to 10:30 PM ET: the Third Presidential Debate, at University of Nevada, Las Vegas, Las Vegas, NV

From Politifact PolitiFact’s guide to the third presidential debate

• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 250 thousand initial claims, up from 246 thousand the previous week.  Note: I expect a larger increase in claims than the consensus due to Hurricane Matthew - maybe closer to 300 thousand.

• Also at 8:30 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of 7.0, down from 12.8.

• At 10:00 AM, Existing Home Sales for September from the National Association of Realtors (NAR).  The consensus is for 5.35 million SAAR, up from 5.33 million in August. Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR.(image)

Fed's Beige Book: "Most Districts indicated a modest or moderate pace of expansion"


Fed's Beige Book "Prepared at the Federal Reserve Bank of Dallas based on information collected on or before October 7, 2016. "Reports from the twelve Federal Reserve Districts suggest national economic activity continued to expand during the reporting period from late August to early October. Most Districts indicated a modest or moderate pace of expansion; however, the New York District reported no change in overall activity. Compared with the previous report, the pace of growth improved in the St. Louis, Kansas City, and Dallas Districts. Outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several Districts.Labor market conditions remained tight, with modest employment and wage growth noted over the reporting period. Most Districts characterized input costs and/or output prices as fairly flat, but prices increased slightly on net.emphasis addedAnd on real estate: Residential real estate activity expanded in most Districts since the prior report, and contacts in a few Districts expressed optimism about future growth. Homes sales fell markedly in the Kansas City District, while slight to moderate gains were reported by most of the other Districts. Demand for lower-priced homes was solid in Districts that commented on it, while sales of higher-priced homes slowed in the New York, Chicago, and Dallas Districts, and in Alaska according to San Francisco's report. Home inventories were generally reported to be low or declining and were restraining sales growth according to the Boston, Philadelphia, and Minneapolis Districts. Home prices continued to rise at a modest pace across much of the country, which contacts in some Districts attributed to tight inventories and labor constraints. Growth in residential construction was generally flat to up during the reporting period, with particular strength noted in the San Francisco District. However, construction activity dipped slightly in the Richmond District partly due to lot shortages.Reports on multifamily activity varied but were positive on net. Strength in the apartment market was noted by the Dallas District (excluding the Houston metro area), while activity was mixed in the New York District. Growth in multifamily construction was positive in the Boston and Atlanta Districts but was mixed in the Richmond District and slowed further according to New York's report.Commercial real estate leasing activity generally improved, and outlooks were mostly optimistic, although contacts in a few Districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. Commercial rents were flat to up, and vacancy rates were generally low and/or declined in reporting Districts, except in the Houston metro area where office vacancies increased further. Sales of commercial properties were characterized as robust in the Chicago, Minneapolis, and San Francisco Districts but softened in the greater Boston area. Commercial construction increased on net, with contacts in the Cleveland and Atlanta Districts reporting increased or high backlogs. Shortages of skilled labor remained a constraint on construction activity in some Districts, such as Cleveland and San Francisco.Real estate is decent.[...]

AIA: Architecture Billings Index declines in September


Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Further Contraction in Architecture Billings Index
For the first time since the summer of 2012, the Architecture Billings Index (ABI) posted consecutive months of a decline in demand for design services. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the September ABI score was 48.4, down from the mark of 49.7 in the previous month. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.4, down from a reading of 61.8 the previous month.

“This recent backslide should act as a warning signal,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “But this drop-off in demand could be continued hesitancy in the marketplace to move forward on projects until the presidential election is decided. The fact that new work coming into architecture continues to slowly increase suggests that billings will resume their growth in the coming months”
• Regional averages: South (53.4), Midwest (50.1), West (49.5), Northeast (44.0)

• Sector index breakdown:commercial/industrial (50.4), mixed practice (49.8), institutional (49.0), multi-family residential (48.8)
emphasis added
(image) Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in September, down from 49.7 in August. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 8 of the last 12 months, suggesting a further increase in CRE investment through mid-2017.  However if this drop-off continues, CRE investment could slow in the 2nd half of 2017.(image)

Comments on September Housing Starts


Earlier: Housing Starts decreased to 1.047 Million Annual Rate in SeptemberThe housing starts report this morning was unusual because of the sharp decline in multi-family starts. However multi-family permits were solid in September, so multi-family starts will probably rebound in October.Meanwhile single family starts were up, and there were upward revisions to the prior two months.  No worries!This first graph shows the month to month comparison between 2015 (blue) and 2016 (red).Click on graph for larger image.Year-to-date starts are up 3.7% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that still looks about right.Multi-family starts are down 5.6% year-to-date, and single-family starts are up 8.6% year-to-date.Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.Both multi-family starts and completions declined in September, but both will probably bounce back in October.I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.[...]

Housing Starts decreased to 1.047 Million Annual Rate in September


From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,047,000. This is 9.0 percent below the revised August estimate of 1,150,000 and is 11.9 percent (±11.9%) below the September 2015 rate of 1,189,000.

Single-family housing starts in September were at a rate of 783,000; this is 8.1 percent above the revised August figure of 724,000. The September rate for units in buildings with five units or more was 250,000.

Building Permits:
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,225,000. This is 6.3 percent above the revised August rate of 1,152,000 and is 8.5 percent above the September 2015 estimate of 1,129,000.

Single-family authorizations in September were at a rate of 739,000; this is 0.4 percent above the revised August figure of 736,000. Authorizations of units in buildings with five units or more were at a rate of 449,000 in September.
emphasis added
(image) Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased significantly in September compared to August.  Multi-family starts are down sharply year-over-year.

Multi-family is volatile, and permits are up - so I expect multi-family starts to bounce back in October.

Single-family starts (blue) increased in September, and are up 5.4% year-over-year.

(image) The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in September were below expectations - due to the decline in multi-family starts - however combined starts for July and August were revised up.  I'll have more later ...(image)

MBA: "Mortgage Applications Slightly Increase in Latest Weekly Survey"


From the MBA: Mortgage Applications Slightly Increase in Latest MBA Weekly Survey
Mortgage applications increased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 14, 2016. This week’s results included an adjustment for the Columbus Day holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 13 percent higher than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since June 2016, 3.73 percent, from 3.68 percent, with points increasing to 0.36 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
(image) Click on graph for larger image.

The first graph shows the refinance index since 1990.

Refinance activity has increased this year since rates have declined.  Since rates are up a little recently, refinance activity has declined a little.

(image) The second graph shows the MBA mortgage purchase index.

The purchase index was "13 percent higher than the same week one year ago". (image)

Wednesday: Housing Starts, Beige Book, 3rd Presidential Debate


From Tim Duy: Are Yellen and Fischer Really Worlds Apart?
Bottom Line: The key debate within the Fed at the moment centers around the need for preemptive rate hikes. The hawks prefer more preemption, the doves favor less. Federal Reserve Lael Brainard pulled the FOMC to the dovish camp, primarily through her influence at Constitution Ave. Yellen is probably somewhat more sympathetic to Brainard than Fischer, but as I said last week, Fischer has moved substantially in Brainard's direction. It is really the presidents that are on the hawkish side of the aisle. There just isn't that much space between Yellen and Fischer at the moment.
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, Housing Starts for September. Total housing starts decreased to 1.142 million (SAAR) in August. Single family starts decreased to 722 thousand SAAR in August. The consensus for 1.180 million, up from the August rate.

• During the day, The AIA's Architecture Billings Index for September (a leading indicator for commercial real estate).

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

• At 9:00 PM ET, the Third Presidential Debate, at University of Nevada, Las Vegas, Las Vegas, NV(image)