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Calculated Risk

Finance and Economics

Updated: 2018-03-24T21:30:56.135-04:00


Schedule for Week of Mar 25, 2018


The key economic reports this week are the third estimate of Q4 GDP, Personal Income and Outlays for February, and Case-Shiller house prices.

----- Monday, Mar 26th -----

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

10:30 AM: Dallas Fed Survey of Manufacturing Activity for March.

----- Tuesday, Mar 27th -----

(image) 9:00 AM ET: S&P/Case-Shiller House Price Index for January.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the December 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 6.2% year-over-year increase in the Comp 20 index for January.

10:00 AM ET: Richmond Fed Survey of Manufacturing Activity for March. This is the last of the regional surveys for March.

----- Wednesday, Mar 28th -----

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

8:30 AM: Gross Domestic Product, 4th quarter 2017 (Third estimate). The consensus is that real GDP increased 2.3% annualized in Q4, unchanged from the second estimate of 2.3%.

10:00 AM: Pending Home Sales Index for February. The consensus is for a 2.7% increase in the index.

----- Thursday, Mar 29th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 228 thousand initial claims, down from 229 thousand the previous week.

8:30 AM: Personal Income and Outlays for February. The consensus is for a 0.4% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for March. The consensus is for a reading of 63.2, up from 61.9 in February.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for February). The consensus is for a reading of 102.0, unchanged from 102.0 in February.

----- Friday, Mar 30th -----

No major economic releases scheduled.(image)

Off-topic: "March, Vote, Change the World!"


To find a local march, here is the March for Our Lives website. Make a difference today!

A stunning article from the WaPo: U.S. School Shootings
Beginning with Columbine in 1999, more than 187,000 students attending at least 193 primary or secondary schools have experienced a shooting on campus during school hours, according to a year-long Washington Post analysis. This means that the number of children who have been shaken by gunfire in the places they go to learn exceeds the population of Eugene, Ore., or Fort Lauderdale, Fla.
March. Vote. Change the World. (image)

Oil Rigs "Signs of life in the minor plays"


A few comments from Steven Kopits of Princeton Energy Advisors LLC on Mar 23, 2018:
• Total US oil rigs were up this week, +4 to 804

• Horizontal oil rigs were up, +1 to 708
• The Permian continues to perform relatively well overall, although only one horizontal rig has been added there in the last six weeks.

• The Cana Woodford was absolutely hammered again, now below its July peak

• The minor ‘Other’ plays have come back to life, with horizontal oil rigs there above last July’s peak for the first time
(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)

Phoenix Real Estate in February: Sales up 8%, Inventory down 12% YoY


This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in February were up 7.7% year-over-year (including homes, condos and manufactured homes).

2) Active inventory is now down 12.1% year-over-year. 

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster.  Prices were up 6.3% in 2015 according to Case-Shiller.  With flat inventory in 2016, prices were up 4.8%.

This is the sixteenth consecutive month with a YoY decrease in inventory, and prices rose a little faster in 2017 compared to 2016 (5.6% in 2017 compared to 4.8% in 2016).

February Residential Sales and Inventory, Greater Phoenix Area, ARMLS
1 February 2008 probably included pending listings

BLS: Unemployment Rates Lower in 7 states in February; California, Maine, Mississippi and Wisconsin at New Series Lows


Earlier from the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were lower in February in 7 states and stable in 43 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Fifteen states had jobless rate decreases from a year earlier and 35 states and the District had little or no change. The national unemployment rate was unchanged from January at 4.1 percent but was 0.6 percentage point lower than in February 2017.
Hawaii had the lowest unemployment rate in February, 2.1 percent. The rates in California (4.3 percent), Maine (2.9 percent), Mississippi (4.5 percent), and Wisconsin (2.9 percent) set new series lows. (All state series begin in 1976.) Alaska had the highest jobless rate, 7.3 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.

Thirteen states have reached new all time lows since the end of the 2007 recession.  These thirteen states are: Alabama, Arkansas, California, Colorado, Hawaii, Kentucky, Maine, Mississippi, North Dakota, Oregon, Tennessee, Texas and Wisconsin.

The states are ranked by the highest current unemployment rate. Alaska, at 7.3%, had the highest state unemployment rate.

(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 one state, Alaska, has an unemployment rate at or above 7% (light blue); And only Alaska is above 6% (dark blue).(image)

A few Comments on February New Home Sales


New home sales for January were reported at 618,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, however the three previous months were revised up.

I'd like to see data for a few more months before blaming higher interest rates, or a negative impact from the new tax law, as the cause of sluggish new home sales.

Earlier: New Home Sales at 618,000 Annual Rate in February.

(image) Click on graph for larger image.

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales are up 2% through February compared to the same period in 2017.  Disappointing growth, but no worries - yet!

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

(image) The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 2018. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.(image)

New Home Sales at 618,000 Annual Rate in February


The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 618 thousand. The previous three months were revised up."Sales of new single-family houses in February 2018 were at a seasonally adjusted annual rate of 618,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent below the revised January rate of 622,000, but is 0.5 percent above the February 2017 estimate of 615,000. "emphasis addedClick on graph for larger image.The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.Even with the increase in sales over the last several years, new home sales are still somewhat low historically.The second graph shows New Home Months of Supply.The months of supply increased in February to 5.9 months from 5.8 months in January. The all time record was 12.1 months of supply in January 2009.This is at the top end of the normal range (less than 6 months supply is normal)."The seasonally-adjusted estimate of new houses for sale at the end of February was 305,000. This represents a supply of 5.9 months at the current sales rate."On inventory, according to the Census Bureau: "A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.The third graph shows the three categories of inventory starting in 1973.The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).In February 2018 (red column), 51 thousand new homes were sold (NSA). Last year, 51 thousand homes were sold in February. The all time high for February was 109 thousand in 2005, and the all time low for February was 22 thousand in 2011.This was below expectations of 626,000 sales SAAR, however the previous months were revised up. I'll have more later today.[...]

Friday: New Home Sales, Durable Goods


• At 8:30 AM ET, Durable Goods Orders for February from the Census Bureau. The consensus is for a 0.1.72% increase in durable goods orders.

• At 10:00 AM, New Home Sales for February from the Census Bureau. The consensus is for 626 thousand SAAR, up from 593 thousand in January.

• Also at 10:00 AM, State Employment and Unemployment (Monthly) for February 2018(image)

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


By request, here is an update to the chart showing market performance under Presidents Trump and Obama.

Note: I don't think the stock market is a great measure of policy performance, but some people do - and I'm having a little fun with them.

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

Update: And from White House chief economic advisor Gary Cohn on December 20, 2017:
"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."
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 16.4% under Mr. Trump - compared to up 44.8% under Mr. Obama for the same number of market days.(image)

Housing Inventory Tracking


Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento, and also total existing home inventory as reported by the NAR (all through February 2018).

(image) Click on graph for larger image.

This shows the year-over-year change in inventory for Phoenix, Sacramento, and Las Vegas.  The black line if the year-over-year change in inventory as reported by the NAR.

Note that inventory is Sacramento was up 17% year-over-year in February (still very low), and has increased year-over-year for five consecutive months.  However inventory is down Nationally, and down in Phoenix and Las Vegas.

I'll try to add a few other markets.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.(image)

Kansas City Fed: Regional Manufacturing Activity "Continued at a Solid Pace" in March


From the Kansas City Fed: Tenth District Manufacturing Activity Continued at a Solid Pace
The Federal Reserve Bank of Kansas City released the March Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued at a solid pace, and optimism remained high for future activity.

“Factory activity continued to grow steadily in March,” said Wilkerson. “Firms continued to report high input and selling prices and many are concerned about higher steel and aluminum tariffs.”
The month-over-month composite index was 17 in March, equal to 17 in February and higher than 16 in January. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Factory activity grew modestly at durable goods plants, particularly for machinery and aircraft, while production of nondurable goods moderated slightly. Month-over-month indexes were mixed. The shipments and new orders indexes decreased moderately, while the production, order backlog, and new orders for exports indexes where basically unchanged. In contrast, the employment index edged up from 23 to 26 and the supplier delivery time index jumped from 16 to 30, both at their highest levels in survey history. The raw materials inventory index increased from 8 to 11, and the finished goods inventory index also rose modestly.
emphasis added
So far all of the regional Fed surveys have been solid in March.(image)

Weekly Initial Unemployment Claims increase to 229,000


The DOL reported:
In the week ending March 17, the advance figure for seasonally adjusted initial claims was 229,000, an increase of 3,000 from the previous week's unrevised level of 226,000. The 4-week moving average was 223,750, an increase of 2,250 from the previous week's unrevised average of 221,500.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
emphasis added
The previous week was unrevised.

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 223,750.

This was slightly higher than the consensus forecast. The low level of claims suggest relatively few layoffs.(image)

Thursday: Unemployment Claims


From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher, Then Lower After Fed Announcement
Mortgage rates rose to new 4-year highs this morning as lenders took a defensive stance ahead of the afternoon's Fed Announcement. The caution proved to be warranted, at least at first, as bond markets reacted negatively to the first phase of Fed-related information. ... When new Fed Chair Jerome Powell began his press conference half an hour later, bond markets (which underlie rates) began to improve. Just over an hour after the initial drama, bonds moved into moderately positive territory on the day and most lenders offered positively-revised rate sheets (i.e. stronger bond markets allowed mortgage lenders to drop their rates). After those reprices, the average lender returned in line with yesterday's rates (which are still pretty close to 4-year highs, but a welcome sight after this morning's offerings). [30YR FIXED - 4.5-4.625%]
emphasis added
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 225 thousand initial claims, up from 226 thousand the previous week.

• At 9:00 AM, FHFA House Price Index for January 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for March.(image)

A Few Comments on February Existing Home Sales


Earlier: NAR: "Existing-Home Sales Rebound 3.0 Percent in February"

A few key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus (although only slightly closer this month). See: Lawler: Early Read on Existing Home Sales in January.

2) Inventory is still very low and falling year-over-year (down 8.1% year-over-year in February). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.    This was the 33rd consecutive month with a year-over-year decline in inventory.

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

(image) Click on graph for larger image.

Sales NSA in February (319,000, red column) were above sales in February 2017 (315,000, NSA).

Sales NSA are always low in January and February, and we will have to wait until March - at the earliest - to draw any conclusions about the impact of higher interest rates and the new tax law on home sales.(image)

FOMC Statement: 25bps Rate Hike


Powell press conference video here.

Here are the updated projections. Forecasting more rate hikes in 2019.

FOMC Statement:
Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely. In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams. emphasis added

AIA: "Architecture billings continue to hold positive in 2018"


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

From the AIA: Architecture billings continue to hold positive in 2018
The American Institute of Architects (AIA) is reporting an increase in architecture firm billings for February from its Architecture Billings Index (ABI), with several key segments showing an encouraging outlook for 2018.

“We remain optimistic about the trends we’re seeing at architecture firms this year with the ABI continuing to show growth in February,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “We saw several major bright spots reflected in February’s data, as billings remained particularly strong at firms located in the West and Midwest.”

While the pace of growth in design activity slowed a bit in February for an ABI score of 52.0 (any score over 50 indicates billings growth), it still reflects a healthy business environment. In particular, firms with a multifamily residential or an institutional specialization continued to report extremely strong billings.
• Regional averages: West (57.6), Midwest (54.5), South (54.4), Northeast (47.5)

• Sector index breakdown: multi-family residential (56.6), institutional (53.8), commercial/industrial (51.0), mixed practice (49.7)
emphasis added
(image) Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 52.0 in February, down from 54.7 in January. Anything above 50 indicates expansion 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 11 of the last 12 months, suggesting a further increase in CRE investment in 2018.(image)

NAR: "Existing-Home Sales Rebound 3.0 Percent in February"


From the NAR: Existing-Home Sales Rebound 3.0 Percent in FebruaryDespite consistently low inventory levels and faster price growth, existing-home sales bounced back in February after two straight months of declines, according to the National Association of Realtors®. Sizeable sales increases in the South and West offset declines in the Northeast and Midwest.Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 3.0 percent to a seasonally adjusted annual rate of 5.54 million in February from 5.38 million in January. After last month’s increase, sales are now 1.1 percent above a year ago....Total housing inventory at the end of February rose 4.6 percent to 1.59 million existing homes available for sale, but is still 8.1 percent lower than a year ago (1.73 million) and has fallen year-over-year for 33 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.8 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 January (5.54 million SAAR) were 3.0% higher than last month, and were 1.1% above the February 2017 rate.The second graph shows nationwide inventory for existing homes.According to the NAR, inventory increased to 1.59 million in February from 1.52 million in January.   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 8.1% year-over-year in February compared to February 2017.   Months of supply was at 3.4 months in February. 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 ...[...]

MBA: Purchase Mortgage Applications Decrease in Latest Weekly Survey


From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 16, 2018.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 6 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.68 percent from 4.69 percent, with points increasing to 0.46 from 0.45 (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 50 bps or more from the recent level.

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

According to the MBA, purchase activity is up 6% year-over-year.(image)

Wednesday: FOMC Announcement, Existing Home Sales


Here is my FOMC preview and a preview from Goldman Sachs economists.

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

• At 10:00 AM, Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 5.42 million SAAR, up from 5.38 million in January. Housing economist Tom Lawler expects the NAR to report sales of 5.44 million SAAR for February.

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

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.(image)

Mortgage Equity Withdrawal slightly positive in Q4


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

The following data is calculated from the Fed's Flow of Funds data (released yesterday) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

For Q4 2017, the Net Equity Extraction was a positive $13 billion, or a positive 0.4% of Disposable Personal Income (DPI) .

(image) Click on graph for larger image.

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

Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago.

MEW has been positive for 7 consecutive quarters, and 9 of the last 10 quarters.  With a slower rate of debt cancellation, MEW will likely be mostly positive going forward.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $68 billion in Q4.

The Flow of Funds report also showed that Mortgage debt has declined by $0.6 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.

For reference:

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

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

Chemical Activity Barometer Increased in March


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

From the American Chemistry Council: In Like a Lion: Leading Economic Indicator Logs Strong Year Over Year Growth; Marks Sixth Consecutive Gain
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.2 percent in March on a three-month moving average (3MMA) basis, its sixth consecutive gain following the 2017 hurricanes. The barometer remains up 3.8 percent on a 3MMA compared to a year earlier.
Applying 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).

The year-over-year increase in the CAB has been solid over the last year, suggesting further gains in industrial production in 2018.(image)

Demographics: Renting vs. Owning


Note; This is an update to a post I wrote in 2015.It was almost 9 years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. The drivers in 2011 were 1) very low new supply for apartments, and 2) strong demand (both favorable demographics, and people moving from owning to renting).The move "from owning to renting" is over, and demographics for apartments are much less favorable than 7 years ago.  Also much more supply has come online.  Slowing demand and more supply for apartments is why multi-family starts have slowed recently (multi-family starts probably peaked in 2015).Multi-family Starts by YearYear5+ Units (000s)2005311.42006292.82007277.32008266.0200997.32010104.32011167.32012233.92013293.72014341.72015385.82016380.82017342.7On demographics, a large cohort had been moving into the 20 to 29 year old age group (a key age group for renters).  Going forward, a large cohort will be moving into the 30 to 39 age group (a key for ownership). Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.NOTE: This graph is updated using the Vintage 2017 estimates.Click on graph for larger image.This graph shows the longer term trend for three key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).This graph is from 1990 to 2060 (all data from BLS: current to 2060 is projected). We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments is probably softening.For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 6+ years.   This demographics is now positive for home buying, and this is a key reason I expect single family housing starts to continue to increase.[...]

"Mortgage Rates Maintain Flat Trajectory Ahead of Fed"


From Matthew Graham at Mortgage News Daily: Mortgage Rates Maintain Flat Trajectory Ahead of Fed
Mortgage rates have been on a tear recently, moving sideways with reckless abandon. Since the middle of February, the "effective rate" (based on actual rate sheet offerings and upfront costs) has held inside a narrow range of 4.52% and 4.58%. This lies in stark contrast to the persistent move higher during the first month and a half of 2018 which saw the same effective rate rise from roughly 4.0% into the 4.5% range.

When rates are as flat as they are on the approach to a key market event like this Wednesday's Fed announcement. We often see a break in that narrow range after the key event. [30YR FIXED - 4.5-4.625%]
emphasis added
Here is a table from Mortgage News Daily:


Lawler: Early Read on Existing Home Sales in February


From housing economist Tom Lawler: Early Read on Existing Home Sales in February

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.44 million in February, up 1.1% from January’s preliminary pace and down 0.5% from last February’s seasonally adjusted pace.

On the inventory front, realtor/MLS data suggest that home listings showed a similar YOY decline last month compared to January, and my “best guess” is that the NAR’s estimate of the inventory of existing homes for sale in January will be 1.57 million, up 3.3% from January’s preliminary estimate and down 9.2% from last February.

Finally, local realtor/MLS data would be consistent with a YOY increase in the NAR’s estimate of the median existing SF home sales price of about 7.5%. I should note that lately the NAR’s estimated YOY gain in median existing SF home sale prices has been south of what local realtor data would have suggested, though I do not know why.

CR Note: Existing home sales for February are scheduled to be released by the NAR on Wednesday.  The consensus is for 5.42 million SAAR, up from 5.38 million in January. (image)

Q1 GDP Forecasts


Here are few Q1 GDP forecast.

From Merrill Lynch:
We continue to track 1.7% qoq saar for 1Q GDP [March 19 estimate].
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 1.8 percent on March 16, down from 1.9 percent on March 14.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.7% for 2018:Q1 and 2.8% for 2018:Q2. [March 16 estimate]
CR Note: It looks like another weak Q1, and there might still be some residual seasonality in the first quarter. (image)