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Finance and Economics



Updated: 2017-11-22T18:56:16.623-05:00

 



FOMC Minutes: Several Participants Worried about "A sharp reversal in asset Prices"

2017-11-22T15:04:35.968-05:00

A couple of key excerpts, the first on asset prices, and the second that low inflation might "prove more persistent".

From the Fed: Minutes of the Federal Open Market Committee, October 31-November 1, 2017:
In their comments regarding financial markets, participants generally judged that financial conditions remained accommodative despite the recent increases in the exchange value of the dollar and Treasury yields. In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy. It was noted, however, that elevated asset prices could be partly explained by a low neutral rate of interest. It was also observed that regulatory changes had contributed to an appreciable strengthening of capital and liquidity positions in the financial sector over recent years, increasing the resilience of the financial system to potential reversals in valuations.
...
Many participants observed, however, that continued low readings on inflation, which had occurred even as the labor market tightened, might reflect not only transitory factors, but also the influence of developments that could prove more persistent. A number of these participants were worried that a decline in longer-term inflation expectations would make it more challenging for the Committee to promote a return of inflation to 2 percent over the medium term. These participants' concerns were sharpened by the apparently weak responsiveness of inflation to resource utilization and the low level of the neutral interest rate, and such considerations suggested that the removal of policy accommodation should be quite gradual. In contrast, some other participants were concerned about upside risks to inflation in an environment in which the economy had reached full employment and the labor market was projected to tighten further, or about still very accommodative financial conditions. They cautioned that waiting too long to remove accommodation, or removing accommodation too slowly, could result in a substantial overshoot of the maximum sustainable level of employment that would likely be costly to reverse or could lead to increased risks to financial stability. A few of these participants emphasized that the lags in the response of inflation to tightening resource utilization implied that there could be increasing upside risks to inflation as the labor market tightened further.
emphasis added
(image)



Vehicle Forecast: Sales Expected to Exceed 17 million SAAR Again in November

2017-11-22T12:17:11.533-05:00

The automakers will report November vehicle sales on Friday, Dec 1st.

Note: There are 25 selling days in November 2017, there were also 25 selling days in November 2016.

From WardsAuto: November U.S. Forecast: Post Sales-Surge Market Will Hit 17.1 Million SAAR
A WardsAuto forecast calls for U.S. automakers to deliver 1.36 million light vehicles in November.
...
The report puts the seasonally adjusted annual rate of sales for the month at 17.1 million units, below last year’s 17.6 million and last month’s exceptionally high 18.0 million.
emphasis added
Sales had been below 17 million SAAR (Seasonally Adjusted Annual Rate) for six consecutive months, until September (18.5 million SAAR) and October (18.0 million SAAR), when sales spiked due to buying following Hurricane Harvey. Sales in November were probably also a little elevated due to the hurricanes.

Even with the pickup in sales in September and October, sales are still down about 2% through October compared to the same period in 2006.(image)



Philly Fed: State Coincident Indexes increased in 41 states in October

2017-11-22T10:49:39.090-05:00

From the Philly Fed:
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2017. Over the past three months, the indexes increased in 40 states, decreased in nine, and remained stable in one, for a three-month diffusion index of 62. In the past month, the indexes increased in 41 states, decreased in seven, and remained stable in two, for a one-month diffusion index of 68.
emphasis added
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
(image) Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

Recently several states have turned red.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

(image) And here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In October, 42 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.  

The reason for the mid-2017 sharp decrease in the number of states with increasing activity is unclear.(image)



MBA: Mortgage Applications Increase Slightly in Latest Weekly Survey

2017-11-22T09:39:06.725-05:00

From the MBA: Mortgage Applications Slightly Increase in Latest MBA Weekly Surve
Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 17, 2017.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 4 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) increased to 4.20 percent from 4.18 percent, with points increasing to 0.42 from 0.40 (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 will not pick up significantly unless mortgage rates fall well below 4%.


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

According to the MBA, purchase activity is up 4% year-over-year.(image)



Weekly Initial Unemployment Claims decrease to 239,000

2017-11-22T08:33:35.078-05:00

The DOL reported:
In the week ending November 18, the advance figure for seasonally adjusted initial claims was 239,000, a decrease of 13,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 249,000 to 252,000. The 4-week moving average was 239,750, an increase of 1,250 from the previous week's revised average. The previous week's average was revised up by 750 from 237,750 to 238,500.

Claims taking procedures continue to be disrupted in the Virgin Islands. The ability to take claims has improved in Puerto Rico.
emphasis added
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 239,750.

This was close to the consensus forecast. The low level of claims suggest relatively few layoffs.(image)



Wednesday: Durable Goods, Unemployment Claims, FOMC Minutes

2017-11-21T19:19:35.561-05:00

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

• At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, down from 249 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 97.9, up from the preliminary reading 97.8.

• At 2:00 PM, FOMC Minutes, Meeting of October 31- November 1, 2017

NYU Stern's "In Conversation with Mervyn King" Series Presents Janet Yellen, Tuesday, November 21, 2017

allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/CZ3bASM0Ito" width="560">(image)



Chemical Activity Barometer Increased in November

2017-11-21T16:57:09.362-05:00

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Continues Solid Gains Into 3rd Quarter
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), notched another solid increase over October’s reading both on a three-month moving average (3MMA) basis and an unadjusted basis. The CAB was up 0.4 percent and 0.3 percent, respectively. The increases continued a bounce back from the effects of Hurricanes Harvey and Irma. Compared to a year earlier, the CAB is up 3.3 percent on a 3MMA basis, a pace that continues to suggest further gains in U.S. commercial and industrial activity into 2nd quarter 2018.
...
pplying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
(image) Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production. The year-over-year increase in the CAB has slowed recently, but this still suggests further gains in industrial production in 2018.(image)



FDIC: Fewer Problem banks, Residential REO Declined in Q3

2017-11-21T14:45:47.087-05:00

The FDIC released the Quarterly Banking Profile for Q3 today:
Higher net interest income, reflecting modest growth in interest-bearing assets and wider net interest margins, helped earnings increase in the third quarter. Quarterly net income at the 5,737 commercial banks and savings institutions insured by the FDIC rose to $47.9 billion, an increase of $2.4 billion (5.2 percent) from third quarter 2016.1 The average return on assets (ROA) rose to 1.12 percent from 1.10 percent a year earlier. More than two out of every three banks—67.3 percent—reported year-over-year increases in earnings, and 59.8 percent reported higher quarterly ROAs. Only 3.9 percent of banks reported net losses for the quarter, compared with 4.6 percent in third quarter 2016.
...
The Deposit Insurance Fund (DIF) balance increased by $2.9 billion, to $90.5 billion, during the third quarter. ... The DIF’s reserve ratio (the fund balance as a percent of estimated insured deposits) rose to 1.28 percent on September 30, 2017, from 1.24 percent at June 30, 2017, and 1.18 percent four quarters ago. The September 30, 2017, reserve ratio is the highest for the DIF since June 30, 2005, when the reserve ratio was also 1.28 percent.
emphasis added
(image) Click on graph for larger image.

The FDIC reported the number of problem banks declined slightly:
During the third quarter, mergers absorbed 50 insured institutions. Two new charters were added during the third quarter, and there were no bank failures. ... The number of banks on the FDIC’s “Problem Bank List” declined from 105 to 104 during the third quarter. Total assets of “problem” banks fell from $17.2 billion to $16 billion.
(image) The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $3.30 billion in Q2 2017 to $3.08 billion in Q3. This is the lowest level of REOs since Q4 2006.

This graph shows the nominal dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Since REOs are reported in dollars, and house prices have increased, it is unlikely FDIC institution REOs will get back to the $2.0 to $2.5 billion range back that happened in 2003 to 2005.    FDIC REOs will probably bottom close to the current level.(image)



A Few Comments on October Existing Home Sales

2017-11-21T12:43:05.415-05:00

Earlier: NAR: "Existing-Home Sales Grow 2.0 Percent in October"

My view is a sales rate of 5.48 million is solid. In fact, 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.

Inventory is still very low and falling year-over-year (down 10.4% year-over-year in October). Inventory has declined year-over-year for 29 consecutive months.  I started the year expecting inventory would be increasing year-over-year by the end of 2017. However it looks like 2017 will be another year of declining inventory.

Inventory is a key metric to watch.  More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

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

(image) Click on graph for larger image.

Sales NSA in October (458,000, red column) were above sales in  October 2016 (445,000, NSA) and at the highest level for October since 2006.

Sales NSA are now slowing seasonally, and sales NSA will be lower through February.(image)



NAR: "Existing-Home Sales Grow 2.0 Percent in October"

2017-11-21T10:15:27.055-05:00

From the NAR: Existing-Home Sales Grow 2.0 Percent in OctoberExisting-home sales increased in October to their strongest pace since earlier this summer, but continual supply shortages led to fewer closings on an annual basis for the second straight month, according to the National Association of Realtors®.Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.0 percent to a seasonally adjusted annual rate of 5.48 million in October from a downwardly revised 5.37 million in September. After last month's increase, sales are at their strongest pace since June (5.51 million), but still remain 0.9 percent below a year ago....Total housing inventory at the end of October decreased 3.2 percent to 1.80 million existing homes available for sale, and is now 10.4 percent lower than a year ago (2.01 million) and has fallen year-over-year for 29 consecutive months. Unsold inventory is at a 3.9-month supply at the current sales pace, which is down from 4.4 months a year ago.emphasis addedClick on graph for larger image.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in October (5.48 million SAAR) were 2.0% higher than last month, and were 0.9% below the October 2016 rate.The second graph shows nationwide inventory for existing homes.According to the NAR, inventory decreased to 1.80 million in October from 1.86 million in September.   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 last 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 10.4% year-over-year in October compared to October 2016.   Months of supply was at 3.9 months in October. As expected by CR readers, sales were above the consensus view. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ... [...]



Chicago Fed "Index Points to a Pickup in Economic Growth in October"

2017-11-21T08:39:52.864-05:00

From the Chicago Fed: Index Points to a Pickup in Economic Growth in October
Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.65 in October from +0.36 in September. One of the four broad categories of indicators that make up the index increased from September, but three of the four categories made positive contributions to the index in October. The index’s three-month moving average, CFNAI-MA3, increased to +0.28 in October from +0.01 in September.
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 above the historical trend in October (using the three-month average).

According to the Chicago Fed:
The index is a weighted average of 85 indicators of growth in 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 monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.
(image)



Black Knight: National Mortgage Delinquency Rate increased in October due to Hurricanes

2017-11-21T08:01:08.384-05:00

From Black Knight: Black Knight’s First Look at October 2017 Mortgage Data: National Delinquency Rate Sees Second Consecutive Annual Rise as Impact from Hurricanes Continues
• October’s 4BPS increase in the national delinquency rate can be directly linked to continued hurricane impact, while delinquencies fell 14BPS in non-affected areas

• Though delinquencies were down in all states except Texas and Florida, in FEMA-declared Hurricanes Harvey and Irma disaster areas, they rose another 24 percent (186BPS) in October

• The most notable increase was in Florida, where delinquencies spiked 36 percent from September in hurricane-affected areas

• Over 229,000 past-due mortgages can now be attributed to Hurricanes Irma (163,000) and Harvey (66,000)

• Total non-current inventories in Florida and Texas (all loans 30 or more days past due or in foreclosure) have risen 79 and 30 percent, respectively, over the past six months
...
• The inventory of loans in active foreclosure continues to improve, falling below 350,000 for the first time since 2006
According to Black Knight's First Look report for October, the percent of loans delinquent increased 0.9% in October compared to September, and increased 2.0% year-over-year.

The percent of loans in the foreclosure process declined 2.8% in October and were down 31.4% 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 4.44% in October, up from 4.40% in September.

The percent of loans in the foreclosure process declined in October to 0.68%.

The number of delinquent properties, but not in foreclosure, is up 60,000 properties year-over-year, and the number of properties in the foreclosure process is down 156,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Oct
2017
Sept
2017
Oct
2016
Oct
2015
Delinquent4.44%4.40%4.35%4.77%
In Foreclosure0.68%0.70%0.99%1.43%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,262,0002,245,0002,202,0002,415,000
Number of properties in foreclosure pre-sale inventory:348,000358,000504,000721,000
Total Properties2,610,0002,603,0002,706,0003,136,000
(image)



Tuesday: Existing Home Sales, Fed Chair Yellen

2017-11-20T18:38:00.162-05:00

From the Federal Reserve: Janet L. Yellen will step down as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair
Janet L. Yellen submitted her resignation Monday as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair.

Dr. Yellen, 71, was appointed to the Board by President Obama for an unexpired term ending January 31, 2024. Her term as Chair expires on February 3, 2018. She also serves as Chair of the Federal Open Market Committee, the System's principal monetary policymaking body.

Prior to her appointment as Chair, Dr. Yellen served as Vice Chair of the Board of Governors, from October 2010 to February 2014, and as President of the Federal Reserve Bank of San Francisco, from June 2004 to October 2010. She was initially appointed to the Board by President Clinton in August 1994 and served until February 1997, when she resigned to serve as Chair of the President's Council of Economic Advisers, until August 1999.

Dr. Yellen is Professor Emerita at the University of California at Berkeley, where she has been a member of the faculty since 1980. She was born in Brooklyn, New York, in August 1946 and received her undergraduate degree in economics from Brown University in 1967 and her Ph.D. in economics from Yale University in 1971. Dr. Yellen is married and has an adult son.

A copy of her resignation letter is attached.
Tuesday:
• At 8:30 AM ET, Chicago Fed National Activity Index for October. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, up from 5.39 million in August. Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR for October. Take the Over.

• At 6:00 PM, Panel Discussion with Fed Chair Janet Yellen, Moderated discussion with Mervyn King, At the New York University Stern School of Business, New York, New York(image)



Update: For Fun, Stock Market as Barometer of Policy Success

2017-11-20T17:16:08.100-05:00

Note: This is a repeat of a June post with updated statistics and graph.

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

(image) Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 13.5% under Mr. Trump compared to up 37.9% under Mr. Obama for the same number of market days.(image)



Will Mr. Trump have a negative impact on the economy?

2017-11-20T15:03:03.097-05:00

Three weeks ago I posted five economic questions I'm frequently asked

Since then I've discussed:
1) Are house prices in a new bubble?

2) Is a recession imminent (within the next 12 months)?

3) Is the stock market a bubble?

4) Can investors use macro analysis?

The final question I'm frequently asked: Will Mr. Trump have a negative impact on the economy?

First some good news. When Mr. Trump was elected, the cupboard was full. In November 2016, employment had been increasing solidly for several years (and the unemployment low and falling), wages had finally started picking up in 2015 and 2016, demographics were improving (the prime working age population was growing again), and the World economy was starting to pick up.

Luckily for Americans, and for Mr. Trump, there have been limited policy changes this year - and the economy has stayed the positive course.   For example, despite the campaign rhetoric, there has been no significant trade wars and no mass deportations.

Some infrastructure spending would be a positive, but the proposals from the Trump administration would have had minimal impact (and luckily they haven't gone anywhere).  As an aside, the best time for more infrastructure spending would have been in the years immediately following the financial crisis when the unemployment rate was still elevated - but unfortunately those efforts were blocked by Congress.

"Repeal and replace" would have had a negative impact on the economy, but luckily it failed.

The current tax proposals - mostly to cut taxes on high income earners and inherited wealth - might have some short term positive impact on the economy, but these proposals would be neutral or negative in the medium to long term.

There is a push to loosen financial regulations, and that would be a medium to long term negative, but not a concern for a few years.

The biggest concern is what Mr. Trump will do if something needs to be done (a crisis of some sort).   Mr. Trump is reckless, ignorant and irresponsible - and his response in a crisis is unpredictable.   But right now the best course for Americans would be if the Trump administration did nothing, and hopefully the expansion will stay on course.


(image)



Lawler: Selected Operating Statistics, Large Publicly-Traded Home Builders

2017-11-20T10:22:17.256-05:00

Below is a table showing selected operating statistics for eight large, publicly-traded builders for the quarter ended September 30, 2017.

From housing economist Tom Lawler:

  Net OrdersSettlementsAverage Closing
Price $ (000s)
Qtr. Ended:9/179/16% Chg9/179/16% Chg9/179/16% Chg
D.R.
Horton
10,3338,74418.2%13,16512,2477.5%3072973.2%
Pulte
Group
5,3004,77511.0%5,1515,0372.3%3993746.7%
NVR4,2003,47720.8%4,1583,9226.0%3933842.3%
Cal
Atlantic
3,4163,531-3.3%3,3803,680-8.2%448452-0.9%
Beazer
Homes
1,3151,346-2.3%1,9041,8562.6%3503344.6%
Meritage
Homes
1,8741,7377.9%1,9691,8009.4%4094090.0%
MDC
Holdings
1,2701,296-2.0%1,3171,2931.9%444445-0.2%
M/I
Homes
1,2251,00821.5%1,2561,1489.4%3663650.3%
SubTotal28,93325,91411.7%32,30030,9834.3%3643562.1%
(image)



Comments on October Housing Starts

2017-11-20T08:11:05.906-05:00

Last Friday: Housing Starts increased to 1.290 Million Annual Rate in OctoberThe housing starts report released Friday showed starts were up 13.7% in October compared to September, however starts were down 2.9% year-over-year compared to October 2016. This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).Click on graph for larger image.Starts were down 2.9% in October 2017 compared to October 2016 (a difficult comparison), and starts are up only 5.8% year-to-date. Note that single family starts are up 10.2% year-to-date, and the weakness (as expected) has been in multi-family starts.My guess was starts would increase around 3% to 7% in 2017.   Looks about right.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 - but has turned down recently.  Completions (red line) have lagged behind - and completions have just passed starts (more deliveries).  Completions lag starts by about 12 months, so completions will probably turn down in about a year.As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).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 low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few more years of increasing single family starts and completions.[...]



Sunday Night Futures

2017-11-19T18:39:49.740-05:00

Weekend:
Schedule for Week of Nov 19, 2017

Monday:
• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 3, and DOW futures are down 23 (fair value).

Oil prices were down over the last week with WTI futures at $56.55 per barrel and Brent at $62.54 per barrel.  A year ago, WTI was at $46, and Brent was at $46 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.54 per gallon. A year ago prices were at $2.15 per gallon - so gasoline prices are up 39 cents per gallon year-over-year.(image)



Sacramento Housing in October: Sales down 5% YoY, Active Inventory up 2% YoY

2017-11-19T08:15:10.666-05:00

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For several years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In October, total sales were down 4.7% from October 2016, and conventional equity sales were up 0.9% compared to the same month last year.

In October, 1.4% of all resales were distressed sales. This was down from 2.2% last month, and down from 4.4% in October 2016.

The percentage of REOs was at 0.7%, and the percentage of short sales was 0.7%.

Sacramento Realtor Press Release: October marks highest median sales price in 10.5 years
October ended with a 3.2% decrease in sales, down from 1,560inSeptemberto 1,510. Compared with the 1,584 sales of October 2016, the current number is a 4.7% decrease. Equity sales for the month continued to grow, accounting for 98.5% (1,510) of the sales this month. REO/bank-owned and Short Sales made up the difference with 11 sales (.7%) and 11 sales (.7%) for the month, respectively.
...
Active Listing Inventory decreased slightly, decreasing 3.4% from 2,625 to 2,536.The Months of Inventory remained at 1.7 Months. A year ago the Months of inventory was 1.6 and Active Listing Inventory stood at 2,492 listings(-1.8% from current figure).
emphasis added
Here are the statistics.

(image) Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 1.8% year-over-year (YoY) in October.  This YoY inventory increase followed 29 consecutive months with a YoY decrease in inventory in Sacramento.

Cash buyers accounted for 13.6% of all sales - this has been generally declining (frequently investors).

Summary: This data suggests a normal market with few distressed sales, and less investor buying - but with limited inventory.  Keep an eye on inventory - this might be a change in trend.(image)



Schedule for Week of Nov 19, 2017

2017-11-18T08:09:04.482-05:00

The key economic report this week is October existing home sales.

Happy Thanksgiving!

----- Monday, Nov 20th -----

No economic releases scheduled.

----- Tuesday, Nov 21st -----

8:30 AM ET: Chicago Fed National Activity Index for October. This is a composite index of other data.

(image) 10:00 AM: Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, up from 5.39 million in August.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR for October.

6:00 PM ET: Panel Discussion with Fed Chair Janet Yellen, Moderated discussion with Mervyn King, At the New York University Stern School of Business, New York, New York

----- Wednesday, Nov 22nd -----

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

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, down from 249 thousand the previous week.

8:30 AM: Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

10:00 AM: University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 97.9, up from the preliminary reading 97.8.

2:00 PM: FOMC Minutes, Meeting of October 31- November 1, 2017

----- Thursday, Nov 23rd -----

All US markets will be closed in observance of the Thanksgiving Day Holiday.

----- Friday, Nov 24th -----

The NYSE and the NASDAQ will close early at 1:00 PM ET. (image)



Oil Rigs "Rigs counts took a breather this week"

2017-11-17T20:21:05.726-05:00

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Nov 17, 2017:
• Rigs counts took a breather this week

• Total US oil rigs were flat, +0 to 738

• Horizontal oil rigs eased back, -1 to 636
...
• On Wednesday, I suggested that excess inventory draws in the US and the Brent-WTI spread likely meant a resumption of upward oil price pressures, and we saw that today, with WTI up $1.35 and the Brent spread holding steady at $6.25
(image) Click on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.(image)



Lawler: Early Read on Existing Home Sales in October

2017-11-17T15:55:07.888-05:00

From housing economist Tom Lawler:

Based on publicly-available state and local realtor/MLS reports from across the country released through today, I predict that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.60 million in October, up 3.9% from September’s preliminary estimate and up 1.3% from last October’s seasonally-adjusted pace. Unadjusted sales should register a higher YOY gain, reflecting this October’s higher business day count compared to last October’s.

On the inventory front, local realtor/MLS data suggest that the NAR’s estimate of the number of existing homes for sale at the end of October will be about 1.88 million, down 1.1% from September’s preliminary estimate and down 6.5% from last October’s estimate.

Finally, realtor/MLS data suggest that the NAR’s estimate of the median existing SF home sales price last month was up 5.8% from last October.

CR Note: Existing home sales for October are scheduled to be released next Tuesday. The consensus is for sales of 5.40 million SAAR. Take the over on Tuesday!(image)



Lawler: Has US Household Growth Slowed, and If So, Why?

2017-11-17T13:31:04.264-05:00

From housing economist Tom Lawler: Has US Household Growth Slowed, and If So, Why?Yesterday the Census Bureau released estimates of America’s Families and Living Arrangements (which includes household estimates) based on the Annual Social and Economic Supplement of the CPS for March 2017, and the estimates suggested that US household growth slowed considerably in the 12-month period ending this March – though by less than that shown in the Census Bureau’s tables.According to the data released yesterday, the CPS/ASEC-based estimate of the number of US households in March 2017 was 126.224 million, up just 405,000 from the March 2016 household estimate of 125.819 million from the 2016 CPS/ASEC. As I noted in an earlier report, however, this meager yearly gain is understated, because the 2016 CPS/ASEC estimates were based on “2015 Vintage” population estimates for 2016, and last year Census (in its “2016 Vintage” release) revised down considerably its population estimates for 2016 (and for earlier years.) Annoyingly, Census does not go back and revise earlier year CPS/ASEC household estimates to reflect revisions in population estimates.For example, CPS/ASEC tables show an increase in the US adult (18+) civilian non-institutionalized population of just 0.59%, from March 2016 to March 2017, while Census’ updated population estimates shown an increase of 0.89% over this period (again, reflecting a downward revision to 2016 estimates).If one were to adjust the 2016 CPS/ASEC household estimate to reflect the downward revisions in 2016 population estimates, the “adjusted” CPS/ASEC household estimate would be about 125.445 million, and the “adjusted” increase in the CPS/ASEC household estimate for 2017 would be about 779,000. This “adjusted” gain still represents a marked slowed in estimated household growth.The CPS/ASEC-based slowdown in household growth for 2017 (an “adjusted” increase of 0.62%, compared to an “adjusted” increase in the adult population of 0.89%) reflects, by arithmetic, an increase in the average household size and a decrease in the aggregate adult “headship” rate. The lower headship rates for 2017 compared to 2016 were not driven by a gain in the number of young adults living with parents (which decreased slightly from last year’s elevated levels), but instead by a decline in the number of people living alone (mainly in the 35+ group).The other major CPS household estimate, based on the Housing Vacancy Survey (HVS) supplement to the CPS, has also showed a marked deceleration in growth. The CPS/HVS estimate of the number of US households in the third quarter of 2017 was 119.085 million, up only 407,000 from the estimate for the third quarter of 2016. (Reminder: the CPS/ASEC household estimate is “controlled” to independent population estimates, while the CPS/HVS household estimate is “controlled” to independent housing stock estimates.)One other household estimate produced by Census comes from the American Community Survey, though only annual estimates are available. For 2016 the ACS-based US household estimate was 118.860 million, up just 652,000 from the 2016 ACS estimate. The ACS household estimate is also effectively “controlled” to independent housing stock estimates.Here is a table showing the latest yearly increase in household estimates from various surveys compared to the average annual increases in the previous 5-year periodRecent Increases in Estimat[...]



MBA: Mortgage Delinquency Rate increases in Q3 mostly due to Hurricanes

2017-11-17T10:41:32.532-05:00

From the MBA: Delinquencies Up in MBA’s National Delinquency Survey for Q3 2017The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 4.88 percent of all loans outstanding at the end of the third quarter of 2017. The delinquency rate was up 64 basis points from the previous quarter, and was 36 basis points higher than one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.The percentage of loans on which foreclosure actions were started during the third quarter was 0.25 percent, a decrease of one basis point from the previous quarter, and five basis points lower than one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 1.23 percent, down 6 basis points from the previous quarter and 32 basis points lower than one year ago.The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 2.52 percent in the third quarter, up 3 basis points from the previous quarter, but 44 basis points lower than one year ago.Marina Walsh, MBA’s Vice President of Industry Analysis, offered the following commentary on the survey:“In the third quarter of 2017, the overall delinquency rate rose by 64 basis points over the previous quarter, with the 30-day delinquency rate accounting for 50 basis points of this variance. Hurricanes Harvey, Irma and Maria caused disruptions and destruction in numerous states. Florida, Texas, neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past due rates. While forbearance is in place for many borrowers affected by these storms, our survey asks servicers to report these loans as delinquent if the payment was not made based on the original terms of the mortgage regardless of any forbearance plans in place.“Mortgage delinquencies increased across all loan types – FHA, VA and conventional – on a seasonally-adjusted basis. The FHA delinquency rate increased to 9.40 percent from 7.94 percent in the second quarter, a 146 basis-point increase and the highest quarter-over-quarter increase reported in the history of our survey. The VA delinquency rate increased 52 basis points to 4.24 percent from 3.72 percent in the second quarter. The conventional delinquency rate increased 50 basis points to 3.97 percent from 3.47 percent in the second quarter.“While the storms played a critical factor in explaining the rise in the overall delinquency rate, there are other factors to consider, especially given delinquency rate increases in other states not directly impacted by the storms. First, there were timing issues associated with the last day of the month being a Saturday. Processing for mortgage payments made over the weekend did not occur until Monday, October 2 and thus these mortgage payments were identified as 30-days delinquent per NDS definitions. “Second, delinquency rates were already at historic lows in the second quarter of 2017. The FHA and VA delinquency rates were at their lowest levels since 1996 and 1979 respectively, while the conventional delinquency rate reached its lowest level since 2005. It would not be unexpected for delinquencies to eventually increase from these levels. ..[...]



BLS: Unemployment Rates Lower in 12 states in October; Alabama, Hawaii and Texas at New Series Lows

2017-11-17T10:29:14.724-05:00

Note from the BLS on Puerto Rico: The Puerto Rico household survey was conducted for the October 2017 reference period. However, the response rate was below average, in part as a result of difficulties accessing some remote areas that were significantly affected by Hurricanes Irma and Maria. From the BLS: Regional and State Employment and Unemployment SummaryUnemployment rates were lower in October in 12 states, higher in 1 state, and stable in 37 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Twenty-three states had jobless rate decreases from a year earlier, 2 states and the District had increases, and 25 states had little or no change. The national unemployment rate edged down to 4.1 percent in October and was 0.7 percentage point lower than a year earlier.... Hawaii had the lowest unemployment rate in October, 2.2 percent, followed by North Dakota, 2.5 percent. The rates in Alabama (3.6 percent), Hawaii (2.2 percent), and Texas (3.9 percent) set new series lows. ... Alaska had the highest jobless rate, 7.2 percent. emphasis added 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.Fourteen states have reached new all time lows since the end of the 2007 recession.  These fourteen states are: Alabama, Arkansas, California, Colorado, Hawaii, Idaho, Maine, Mississippi, North Dakota, Oregon, Tennessee, Texas, Washington, and Wisconsin.The states are ranked by the highest current unemployment rate. Alaska, at 7.2%, had the highest state unemployment rate.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 one state has an unemployment rate at or above 7% (light blue); Only two states and D.C. are at or above 6% (dark blue). The states are Alaska (7.2%) and New Mexico (6.1%).  D.C. is at 6.6%.[...]