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Finance and Economics



Updated: 2016-12-09T12:27:23.447-05:00

 



Fed's Flow of Funds: Household Net Worth increased in Q3

2016-12-09T12:18:01.670-05:00

The Federal Reserve released the Q3 2016 Flow of Funds report today: Flow of Funds.According to the Fed, household net worth increased in Q3 compared to Q2:The net worth of households and nonprofits rose to $90.2 trillion during the third quarter of 2016. The value of directly and indirectly held corporate equities increased $494 billion and the value of real estate increased $554 billion.Household net worth was at $90.2 trillion in Q3 2016, up from $88.0 trillion in Q2 2016. The Fed estimated that the value of household real estate increased to $22.7 trillion in Q3. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and also including new construction. Click on graph for larger image.The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q3 2016, household percent equity (of household real estate) was at 57.3% - up from Q2, and the highest since Q2 2006. This was because of an increase in house prices in Q3 (the Fed uses CoreLogic). Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 57.3% equity - and about 3 million homeowners still have negative equity. The third graph shows household real estate assets and mortgage debt as a percent of GDP. Mortgage debt increased by $86 million in Q3. Mortgage debt has declined by $1.21 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).The value of real estate, as a percent of GDP, was up in Q3, and  is above the average of the last 30 years (excluding bubble).[...]



Preliminary November Consumer Sentiment increases to 98.0

2016-12-09T10:14:16.977-05:00

The preliminary University of Michigan consumer sentiment index for December was at 98.0, up from 93.8 in November.
Consumer confidence surged in early December to just one-tenth of an Index point below the 2015 peak—which was the highest level since the start of 2004. The surge was largely due to consumers’ initial reactions to Trump’s surprise victory. When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys. To be sure, an equal number volunteered negative judgments about prospective economic policies, but the frequency of those negative references was less than half its prior peak levels whereas positive references were about twice its prior peak. There were a few exceptions to the early December surge in optimism, mainly among those with a college degree and among residents of the Northeast, although no group has adopted a pessimistic outlook for the economy. The most important implication of the increase in optimism is that it has raised expectations for the performance of the economy. President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance. Either too slow growth or too high expectations represent barriers to maintaining high levels of consumer confidence. Until specific policies are proposed, there is no reason to alter the 2017 forecast of 2.5% for real consumption.
emphasis added
(image)
Click on graph for larger image.(image)



Friday: Flow of Funds

2016-12-08T21:39:26.627-05:00

Friday:
• At 8:30 AM ET, University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 94.1, up from 93.8 in November.

• Also at 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for October. The consensus is for a 0.4% decrease in inventories.

• At 12:00 PM, Q3 Flow of Funds Accounts of the United States from the Federal Reserve.(image)



Goldman: Fiscal Boost: Mainly a 2018 Story 

2016-12-08T16:01:04.373-05:00

A few excerpts from a research piece by Goldman Sachs economist Alec Phillips: Fiscal Boost: Mainly a 2018 Story
We expect fiscal policy to become more expansionary next year, but the timing is uncertain. Our preliminary expectation is that the growth effects from looser fiscal policy would be concentrated in Q4 2017 and the first half of 2018. The timing depends mainly on how long it takes tax legislation to become law, and whether Congress legislates a prolonged phase-in or implements the full tax cut in the first year. ...

Infrastructure and federal spending are also potential factors. On the former, the lags are often quite long ... On the latter, a boost to defense spending looks likely sometime between Q2 and Q4 2017, but this may be partly offset with cuts to non-defense spending in the same timeframe.

The effect of Obamacare “repeal and replace” is less clear, but seems likely to provide a modest net stimulus in the near term—potentially as soon as Q2 2017—as a result of the likely repeal of the taxes used to pay for some of the program. Other changes are likely but seem unlikely to be implemented until 2019.
(image)



Animal Spirits and Business Confidence

2016-12-08T13:05:13.921-05:00

A few excerpts from two research reports this morning:

From Merrill Lynch: Animal spirits matter
Anecdotes and surveys suggest that business and consumer confidence has improved following the election. The gain in animal spirits could amplify the boost to the economy from fiscal stimulus, creating upside risk to our forecast. We will have to wait for the "hard data" from November and December to have clarity on the timing and magnitude.
emphasis added
From Wells Fargo: Small Business Confidence Jumps Following the Presidential Election
Small business owners are feeling much more optimistic about the prospects for the economy and their business in the coming year. The latest Wells Fargo/Gallup Small Business Index, which was conducted from Nov. 11 to Nov. 17, jumped 12 points to 80 from the previous quarter and is up 26 points over the past year. Small business optimism is now at its highest level since January 2008, when the index was coming down as the economy slid into recession. The latest reading marks the largest quarterly increase in a little over a year and is one of the largest quarterly gains in the series’ history.
...
While political factors likely influenced the magnitude of the improvement in small business confidence, business owners’ attitudes about the economy and their business have been gradually improving for the past few years. All of the improvement in the most recent quarter, however, came from the expectations series, which jumped 17 points in the fourth quarter. The present situation index fell 5 points, essentially reversing the prior quarter’s gain.
(image)



CoreLogic: 384,000 borrowers moved out of negative equity in Q3

2016-12-08T10:05:00.166-05:00

From CoreLogic: CoreLogic Reports Home Equity Increased $726 billion in the Third Quarter Compared With a Year Ago
CoreLogic ... today released a new analysis showing that U.S. homeowners with mortgages (roughly 63 percent of all homeowners) saw their equity increase by a total of $227 billion in Q3 2016 compared with the previous quarter, an increase of 3.1 percent. Additionally, 384,000 borrowers moved out of negative equity, increasing the percentage of homes with positive equity to 93.7 percent of all mortgaged properties, or approximately 47.9 million homes. Year over year, home equity grew by $726 billion, representing an increase of 10.8 percent in Q3 2016 compared with Q3 2015.

In Q3 2016, the total number of mortgaged residential properties with negative equity stood at 3.2 million, or 6.3 percent of all homes with a mortgage. This is a decrease of 10.7 percent quarter over quarter from 3.6 million homes, or 7.1 percent of mortgaged properties, in Q2 2016 and a decrease of 24.1 percent year over year from 4.2 million homes, or 8.4 percent of mortgaged properties, in Q3 2015. ...
...
Negative equity peaked at 26 percent of mortgaged residential properties in Q4 2009, based on CoreLogic negative equity data, which goes back to Q3 2009.
...
“Home equity rose by $12,500 for the average homeowner over the last four quarters,” said Dr. Frank Nothaft, chief economist for CoreLogic. “There was wide geographic variation with homeowners in California, Oregon and Washington gaining an average of at least $25,000 in home equity wealth, while owners in Alaska, North Dakota and Connecticut had small declines, on average.”

“Price appreciation is the main ingredient for home equity wealth creation, and home prices rose 5.8 percent in the year ending September 2016 according to the CoreLogic Home Price Index,” said Anand Nallathambi, president and CEO of CoreLogic. “Paydown of principal is the second key component of equity building. Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”
emphasis added
On states:
"Nevada had the highest percentage of mortgaged properties in negative equity at 14.2 percent, followed by Florida (12.5 percent), Illinois (10.6 percent), Arizona (10.6 percent) and Rhode Island (10 percent). These top five states combined accounted for 30.6 percent of negative equity mortgages in the U.S., but only 16.3 percent of outstanding mortgages."
Note: The share of negative equity is still high in Nevada and Florida, but down from a year ago.

(image) Click on graph for larger image.

This graph shows the distribution of home equity in Q3 2016 compared to Q2 2016.

Just over 2% of properties have 25% or more negative equity.  For reference, about four years ago, in Q3 2012, 9.6% of residential properties had 25% or more negative equity.

A year ago, in Q3 2015, there were 4.2 million properties with negative equity - now there are 3.2 million.  A significant change.(image)



Weekly Initial Unemployment Claims decrease to 258,000

2016-12-08T08:33:30.561-05:00

The DOL reported:
In the week ending December 3, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 10,000 from the previous week's unrevised level of 268,000. The 4-week moving average was 252,500, an increase of 1,000 from the previous week's unrevised average of 251,500.

There were no special factors impacting this week's initial claims. This marks 92 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
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 252,500.

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



Thursday: Unemployment Claims

2016-12-07T21:38:34.785-05:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Fall Ahead of European Central Bank Announcement
Mortgage rates moved moderately lower today, as financial markets positioned themselves for an important announcement from the European Central Bank (ECB) tomorrow regarding the possibility of tapering its asset purchases.
...
4.125% remains the most prevalent conventional 30yr fixed rate on top tier scenarios with 4.25% not too far behind. 4.0% is a distant third. Today's rates are most similar to those seen on December 2nd. Things could change in a big way depending on what the ECB says tomorrow, for better or worse.
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 268 thousand the previous week.

• At 10:00 AM, The Q3 Quarterly Services Report from the Census Bureau.(image)



Annual Employment Gains some early thoughts on 2017

2016-12-07T15:42:23.321-05:00

I'm starting to look at my 10 economic questions for 2017 (something I do every year).

Last year I thought the unemployment rate would be 4.5% in December 2016 (the rate fell to 4.6% in November), and that the economy would add around 200,000 jobs per month (down from 2014 and 2015). Through November, the economy has averaged 180,000 per month in 2016.

I'll be looking at several factors for job gains in 2017 - demographics, labor force participation economic growth, fiscal policies, etc. - but my general view is the economy is solid, has room to run, however it is past the peak of the employment gains for this business cycle.  It appears the peak job gains in this cycle was  in 2014.

(image) Click on graph for larger image.

This graph shows the annual job gains for both private and public employment.

In the '80s, annual private employment gains peaked at 3.6 million in 1984, however the employment expansion continued for five more years.

In the '90s, private employment gains peaked in 1994 at 3.6 million, and gains continued for 6 more years.

In the current cycle, private gains peaked at 2.9 million in 2014.

The demographics are very different than from the '80s. The prime working age population was growing very quickly in the '80s, and the prime age population started shrinking starting in 2007 (and bottomed in 2012).  So the peak year of this cycle wasn't as strong.

With current demographics, it only takes 60 to 80 thousand jobs added per month to keep the unemployment rate steady (this is far less than in the '80s or '90s).   Since we are nearing full employment, my initial guess is the economy will add fewer jobs in 2017 than in 2014 or 2015.

I'll post my Ten Questions for 2017 and some guesses for 2017 in a few weeks.(image)



Las Vegas Real Estate in November: Sales up 30% YoY, Inventory down Sharply

2016-12-07T11:49:02.285-05:00

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada Home Prices and Sales Increasing Heading into Holidays, GLVAR Housing Statistics for November 2016
The Greater Las Vegas Association of REALTORS® (GLVAR) reported Wednesday that Southern Nevada home prices bucked seasonal trends and increased heading into the holidays while home sales continued to exceed last year’s pace.
...
According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in November was 3,244. That was up 30.0 percent from one year ago. Compared to the same month one year ago, 31.8 percent more homes, and 31.2 percent more condos and townhomes sold in November.

So far in 2016, Beaudry said Southern Nevada is on pace to sell more existing homes this year than during 2015 and during 2014, but fewer than during each of the previous five years.

He added that inventory remains tight, with less than a three-month supply of homes available for sale, when a six-month supply is considered to be a balanced market.
...
By the end of November, GLVAR reported 7,252 single-family homes listed for sale without any sort of offer. That’s down 30.3 percent from one year ago. For condos and townhomes, the 1,141 properties listed without offers in November represented a 49.0 percent decrease from one year ago.
emphasis added
1) Overall sales were up 30% year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago (A very sharp decline in both single family and condo inventory).

This is the second market (Phoenix reported yesterday) with sales up 30% year-over-year. There might be some seasonal factors (more selling days), but this is a significant increase in these markets.(image)



BLS: Job Openings "little changed" in October

2016-12-07T10:06:49.579-05:00

From the BLS: Job Openings and Labor Turnover Summary
The number of job openings was little changed at 5.5 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were also little changed at 5.1 million and 4.9 million, respectively....
...
The number of quits was little changed in October at 3.0 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private, and decreased for government (-26,000).
emphasis added
The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November.

(image) Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in October to 5.534 million from 5.631 million in September.  Job openings are mostly moving sideways at a high level.

The number of job openings (yellow) are up 2% year-over-year.

Quits are up 7% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report.(image)



MBA: Mortgage Applications Decrease in Latest Weekly Survey

2016-12-07T07:00:25.871-05:00

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 0.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 2, 2016. The prior week’s results included an adjustment for the Thanksgiving holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 0.4 percent from one week earlier. The unadjusted Purchase Index increased 36 percent compared with the previous week and was 3 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 October 2014, 4.27 percent, from 4.23 percent, with points decreasing to 0.37 from 0.41 (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.

With the current level of mortgage rates, refinance activity will probably decline further.


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

The purchase index was "3 percent higher than the same week one year ago".(image)



Wednesday: Job Openings

2016-12-06T19:30:24.105-05:00

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

• At 10:00 AM, Job Openings and Labor Turnover Survey for October from the BLS. Jobs openings decreased in September to 5.486 million from 5.453 million in August. The number of job openings were up 2% year-over-year in September, and Quits were up 12% year-over-year.

• At 3:00 PM, Consumer credit from the Federal Reserve.  The consensus is for a $19.0 billion increase in credit.(image)



Phoenix Real Estate in November: Sales up 30%, Inventory down 2%

2016-12-06T16:44:37.784-05:00

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

Inventory was down 2% year-over-year in October.  This followed eight consecutive months with a YoY increase in inventory.

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

1) Overall sales in November were up 30.2% year-over-year.

2) Cash Sales (frequently investors) were down to 23.4% of total sales.

3) Active inventory is now down 1.8% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply 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.

This slight decrease in inventory followed eight monthly YoY increases.  This might be a change in trend - something to watch.

November Residential Sales and Inventory, Greater Phoenix Area, ARMLS
  SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
Active
Inventory
YoY
Change
Inventory
Nov-084,417---1,21727.6%56,2271---
Nov-097,49469.7%2,57234.3%40,372-28.2%
Nov-106,789-9.4%2,96643.7%45,35312.3%
Nov-117,1475.3%3,24545.4%26,798-40.9%
Nov-126,810-4.7%2,94543.2%23,232-13.3%
Nov-135,181-23.9%1,76134.0%26,76215.2%
Nov-144,986-3.8%1,39628.0%27,4262.5%
Nov-155,3086.5%1,54229.1%25,022-8.8%
Nov-166,91130.2%1,61823.4%24,582-1.8%
1 November 2008 probably includes pending listings
(image)



EIA: "Retail gasoline prices are forecast to average $2.30/gal in 2017"

2016-12-06T13:43:19.174-05:00

The EIA released the Short-Term Energy Outlook today. From the STEO:
• U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015, and it is forecast to average 8.9 million b/d in 2016 and 8.8 million b/d in 2017.

EIA forecasts Brent crude oil prices to average $43 per barrel (b) in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017. The values of futures and options contracts indicate significant uncertainty in the price outlook. The NYMEX contract values for March 2017 delivery traded during the five-day period ending December 1 suggest that a range from $34/b to $71/b encompasses the market expectation of WTI prices in March 2017 at the 95% confidence level.

• Lower crude oil prices contributed to U.S. average retail regular gasoline prices in November averaging $2.18 per gallon (gal), a decline of 7 cents/gal from the October level. EIA expects gasoline prices to fall to an average of $2.10/gal in January. Retail gasoline prices are forecast to average $2.14/gal in 2016 and $2.30/gal in 2017.

• Global oil inventory builds are forecast to average 0.7 million b/d in 2016 and 0.4 million b/d in 2017.
emphasis added
WTI is currently at $50.69 per barrel, and Brent at $53.86 per barrel. So the EIA isn't expecting any further increase in 2017 (on average). (image)



CoreLogic: House Prices up 6.7% Year-over-year in October

2016-12-06T10:30:15.894-05:00

Notes: This CoreLogic House Price Index report is for October. The recent Case-Shiller index release was for September. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 6.7 Percent in October 2016
Home prices nationwide, including distressed sales, increased year over year by 6.7 percent in October 2016 compared with October 2015 and increased month over month by 1.1 percent in October 2016 compared with September 2016, according to the CoreLogic HPI.
...
“While national home prices increased 6.7 percent, only nine states had home price growth at the same rate of growth or higher than the national average because the largest states, such as Texas, Florida and California, are experiencing high rates of home price appreciation,” said Dr. Frank Nothaft, chief economist for CoreLogic.

“Home prices are continuing to soar across much of the U.S. led by major metro areas such as Boston, Los Angeles, Miami and Denver. Prices are being fueled by a potent cocktail of high demand, low inventories and historically low interest rates,” said Anand Nallathambi, president and CEO of CoreLogic. “Looking forward to next year, nationwide home prices are expected to climb another 5 percent in many parts of the country to levels approaching the pre-recession peak.”
emphasis added
(image) Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.1% in October (NSA), and is up 6.7% over the last year.

This index is not seasonally adjusted, and this was another solid month-to-month increase.

The index is still 4.6% below the bubble peak in nominal terms (not inflation adjusted).

(image) The second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last two years.

The year-over-year comparison has been positive for fifty seven consecutive months since turning positive year-over-year in February 2012.(image)



Trade Deficit at $42.6 Billion in October

2016-12-06T08:42:40.264-05:00

From the Department of Commerce reported:
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $42.6 billion in October, up $6.4 billion from $36.2 billion in September, revised. October exports were $186.4 billion, $3.4 billion less than September exports. October imports were $229.0 billion, $3.0 billion more than September imports.
The trade deficit was close to the consensus forecast.

The first graph shows the monthly U.S. exports and imports in dollars through October 2016.

(image) Click on graph for larger image.

Imports increased and exports decreased in October.

Exports are 13% above the pre-recession peak and up slightly compared to October 2015; imports are up 1% compared to October 2015. 

It appears trade might be picking up a little.

The second graph shows the U.S. trade deficit, with and without petroleum.

(image) The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $40.01 in October, up from $39.02 in September, and down from $40.12 in October 2015.  The petroleum deficit has generally been declining  (but has increased recently with the decline in oil prices) and is the major reason the overall deficit has declined a little since early 2012.

The trade deficit with China decreased to $31.1 billion in October, from $32.9 billion in October 2015. The deficit with China is a substantial portion of the overall deficit, but the deficit with China has been declining.(image)



Tuesday: Trade Deficit

2016-12-05T19:19:03.074-05:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Begin Week Higher
Mortgage rates were slightly higher today relative to last Friday's levels, leaving them near the 2-year highs seen last Thursday. Volatility continues to run much higher than normal, with lots of intraday reprices (lenders changing rates in the middle of the business day) over the past 2 weeks, and generally big changes from day to day.
...
Most lenders are quoting conventional 30yr fixed rates between 4.125 and 4.25% on top tier scenarios.
emphasis added
Tuesday:
• At 8:30 AM ET, Trade Balance report for October from the Census Bureau. The consensus is for the U.S. trade deficit to be at $42.0 billion in October from $36.4 billion in September.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is a 2.7% increase in orders.(image)



A few comments on the Seasonal Pattern for House Prices

2016-12-05T16:11:32.914-05:00

CR Note: This is a repeat of a previous post with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

(image) Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic (through September 2016) and NSA Case-Shiller National index since 1987 (through September 2016).   The seasonal pattern was smaller back in the '90s and early '00s, and once the bubble burst.

The seasonal swings have declined since the bubble.

(image) The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The seasonal factor has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.  However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.(image)



2017 Housing Forecasts

2016-12-05T15:58:50.657-05:00

Towards the end of each year I collect some housing forecasts for the following year.  It looks like analysts are optimistic on New Home sales for 2017.First a review of the previous four years ...Here is a summary of forecasts for 2016. In 2016, new home sales will probably be around 565 thousand, and total housing starts will be around 1.175 million.  Fannie Mae and Merrill Lynch were very close on New Home sales, and MetroStudy was close on starts.Here is a summary of forecasts for 2015. In 2015, new home sales were 501 thousand, and total housing starts were 1.112 million.  Zillow, CoreLogic, and the MBA were right on with New Home sales, and CoreLogic, MetroStudy, MBA and Zillow were all correct on starts.Here is a summary of forecasts for 2014. In 2014, new home sales were 437 thousand, and total housing starts were 1.003 million. No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high). In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays was the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.The table below shows several forecasts for 2017:From Fannie Mae: Housing Forecast: November 2016 From Freddie Mac: Interest Rates Headed Higher. What that Means for HousingFrom NAHB: NAHB’s housing and economic forecastFrom Wells Fargo: Monthly Economic Outlook From NAR: U.S. Economic Outlook: November 2016Note: For comparison, new home sales in 2016 will probably be around 565 thousand, and total housing starts around 1.175 million.Housing Forecasts for 2017New Home Sales (000s)Single Family Starts (000s)Total Starts (000s)House Prices1Bloomberg1,250Blue Chip1,260CoreLogic4.7%Fannie Mae6718831,3084.8%2Freddie Mac1,2604.7%2Goldman Sachs6488931,3333.7%HomeAdvisor56148931,2363.5%Merrill Lynch6258251,2253.2%MBA8601,268NAHB6478731,258NAR6238381,2214.2%3Wells Fargo6008301,1704.4%Zillow3.6%41Case-Shiller unless indicated otherwise2FHFA Purchase-Only Index3NAR Median Prices4Zillow Home Prices5Brad Hunter, chief economist, formerly of MetroStudy[...]



ISM Non-Manufacturing Index increased to 57.2% in November

2016-12-05T10:06:05.384-05:00

The November ISM Non-manufacturing index was at 57.2%, up from 54.8% in October. The employment index increased in November to 58.1%, from 53.1%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management:November 2016 Non-Manufacturing ISM Report On Business®
Economic activity in the non-manufacturing sector grew in November for the 82nd consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 57.2 percent in November, 2.4 percentage points higher than the October reading of 54.8 percent. This represents continued growth in the non-manufacturing sector at a faster rate. This is the 12-month high, and the highest reading since the 58.3 registered in October of 2015. The Non-Manufacturing Business Activity Index increased to 61.7 percent, 4 percentage points higher than the October reading of 57.7 percent, reflecting growth for the 88th consecutive month, at a faster rate in November. The New Orders Index registered 57 percent, 0.7 percentage point lower than the reading of 57.7 percent in October. The Employment Index increased 5.1 percentage points in November to 58.2 percent from the October reading of 53.1 percent. The Prices Index decreased 0.3 percentage point from the October reading of 56.6 percent to 56.3 percent, indicating prices increased in November for the eighth consecutive month at a slightly slower rate. According to the NMI®, 14 non-manufacturing industries reported growth in November. The Non-Manufacturing sector rebounded after a slight cooling-off in October. The majority of respondents' comments are positive about business conditions and the direction of the overall economy."
emphasis added
(image) Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 55.5, and suggests faster expansion in November than in October.  A strong report.(image)



Black Knight October Mortgage Monitor

2016-12-05T07:01:16.066-05:00

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for October today. According to BKFS, 4.35% of mortgages were delinquent in October, down from 4.77% in October 2015. BKFS also reported that 0.99% of mortgages were in the foreclosure process, down from 1.43% a year ago.This gives a total of 5.34% delinquent or in foreclosure.Press Release: Black Knight’s Mortgage Monitor: Post-Election Rate Jumps Eliminate 4.3 Million from Refinanceable Population, Push Home Affordability to Post-Recession LowToday, the Data & Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Mortgage Monitor Report, based on data as of the end of October 2016. In the immediate aftermath of the U.S. presidential election, 30-year mortgage rates have spiked by 49 basis points (BPS) in just a few short weeks. This month, Black Knight examines the impact of these jumps on the population of borrowers who could both likely qualify for and have incentive to refinance as well as the wider matter of home affordability. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, the effects have been dramatic, but must still be seen in the proper historical context. “The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year Treasury and 30-year mortgage interest rates,” said Graboske. “As mortgage rates jumped 49 BPS in the weeks following the election, we saw the population of refinanceable borrowers cut by more than half. From the 8.3 million borrowers who could both likely qualify for and had interest rate incentive to refinance immediately prior to the election, we’re now looking at a population of just 4 million total, matching a 24-month low set back in July 2015. While there are still two million borrowers who could save $200 or more per month by refinancing and a cumulative $1 billion per month in potential savings, this is less than half of the $2.1 billion per month that was available just four short weeks ago. These changes will likely have an impact on refinance origination volumes moving forward. And, since higher interest rates tend to reduce the refinance share of the market – specifically in higher credit segments – which typically outperform their purchase mortgage counterparts, they may potentially impact overall mortgage performance as well. emphasis added Click on graph for larger image.This map from Black Knight shows the monthly change in delinquency rate - and the impact of Hurricane Matthew on mortgage delinquencies.From Black Knight: • While most of the country saw minimal increases or even declines in delinquencies, those areas of the country impacted by Hurricane Matthew saw significant increases in delinquency rates in October • South Carolina’s delinquency rate jumped nine percent, (from 5.1 to 5.6 percent) while Florida’s climbed six percent (from 4.5 to 4.8 percent) • The hardest hit areas were along the coast, and correspondingly higher increases in delinquencies were observed in these areas as well• In some of the hardest hit areas of South Carolina, delinquency rates rose by more than 20 percent from September to October • Since the worst of the storm hit the southeast on October 7th and 8th, after the majority of borrowers would have made their mortgage payments, we could yet see further impact in November’s mortgage performance data This graph from Black Knight [...]



Sunday Night Futures

2016-12-04T19:17:59.582-05:00

Weekend:
Schedule for Week of Dec 4, 2016

Monday:
• At 10:00 AM ET, The Fed will release the monthly Labor Market Conditions Index (LMCI).

• Also at 10:00 AM, the ISM non-Manufacturing Index for November. The consensus is for the index to increase to 55.5 from 54.8 in October.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 8, and DOW futures are down 40 (fair value).

Oil prices were up sharply over the last week with WTI futures at $51.68 per barrel and Brent at $54.46 per barrel.  A year ago, WTI was at $40, and Brent was at $41 - so oil prices are up 25% to 30% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.18 per gallon - a year ago prices were at $2.04 per gallon - so gasoline prices are up more than 10 cents per gallon year-over-year.

(image) Click on graph for larger image

This graph shows the year-over-year change in WTI based on data from the EIA.

Five times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.  Oil prices are volatile!

WTI oil prices are currently up 27% year-over-year.(image)



Poor Gretchen on Fannie and Freddie

2016-12-04T12:40:47.650-05:00

My former co-blogger Tanta wrote several posts pointing out questionable reporting in articles by "poor Gretchen" Morgenson of the NY Times.  Tanta would have a field day with GM's article today: Trump Treasury May Mean Independence for Fannie and FreddieWith an apology to Tanta (who knew far more about the mortgage market than I ever will, and was a far better writer than me), here are a few comments on the article today.Gretchen starts by quoting Steven Mnuchin, the nominee to run the Treasury Department for the next administration: “We got to get Fannie and Freddie out of government ownership,” he told Fox Business. “It makes no sense that these are owned by the government and have been controlled by the government for as long as they have.”Mr. Mnuchin is right.We got to get Steve in an English class, but lets focus on the substance.Is Mnuchin right? "It makes no sense that these are owned by the government" is a declarative statement without any backing. Perhaps Gretchen and Steve could study a little history. Fannie Mae was started in 1938 as a government agency to provide liquidity in the mortgage market. Over time Fannie was changed into a public-private organization, and finally into a private, for-profit, corporation with an implied government backing.This privatization has been described as "privatizing profits, and socializing losses". If something made no sense, it was a structure that gave the profits to private investors, with the risks borne by the taxpayers.  It should be obvious to all that the original privatization was a mistake. Instead of putting Fannie and Freddie into bankruptcy during the crisis - and wiping out the shareholders while putting a stranglehold on the housing market at exactly the wrong time - the government put Fannie and Freddie into conservatorship.   This kept the housing market on life support.  The taxpayers took all of the risk, and therefore the taxpayers deserve all of the profits.  That should be the end of that story. Note: For the funny naming history of Fannie and Freddie, see Tanta's: On Maes and MacsBack to Gretchen: So what might happen now? In his comments, Mr. Mnuchin nodded to a crucial issue regarding Fannie and Freddie: safety and soundness. “We’ll make sure that when they’re restructured, they’re absolutely safe and they don’t get taken over again,” he said, “But we got to get them out of government control.”Out of "government control"? Does me mean no government backing if they collapse again? Then what entity would provide liquidity during the next crunch? Or is Steve suggesting going back to privatizing profits (enriching the investors), and socializing the risks (all of of us taxpayers)?What makes sense is for most of the mortgage market - most of the time - to be in the private sector, and for the government to provide liquidity during a credit crunch. We need government organizations operating all the time (hopefully as a small portion of the overall market), so that they can ramp up quickly during a crunch. But that doesn't appear to be what Steve is considering.[...]



Schedule for Week of Dec 4, 2016

2016-12-03T08:11:01.240-05:00

This will be a light week for economic data.The key reports are the ISM non-manufacturing index, Job Openings, and the October trade deficit.The Q3 Quarterly Services and the Fed's Q3 Flow of Funds reports will be released this week.----- Monday, Dec 4th -----10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI). 10:00 AM: the ISM non-Manufacturing Index for November. The consensus is for index to increase to 55.5 from 54.8 in October.----- Tuesday, Dec 5th-----8:30 AM: Trade Balance report for October from the Census Bureau. This graph shows the U.S. trade deficit, with and without petroleum, through September. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.The consensus is for the U.S. trade deficit to be at $42.0 billion in October from $36.4 billion in September.10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is a 2.7% increase in orders.----- Wednesday, Dec 6th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.10:00 AM: Job Openings and Labor Turnover Survey for October from the BLS. This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Jobs openings decreased in September to 5.486 million from 5.453 million in August.The number of job openings (yellow) were up 2% year-over-year, and Quits were up 12% year-over-year.3:00 PM: Consumer credit from the Federal Reserve.  The consensus is for a $19.0 billion increase in credit.----- Thursday, Dec 7th -----8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 268 thousand the previous week.10:00 AM: The Q3 Quarterly Services Report from the Census Bureau.----- Friday, Dec 8th -----10:00 AM: University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 94.1, up from 93.8 in November.10:00 AM: Monthly Wholesale Trade: Sales and Inventories for October. The consensus is for a 0.4% decrease in inventories.12:00 PM: Q3 Flow of Funds Accounts of the United States from the Federal Reserve. [...]