DataQuick on California Home Sales: Total Sales Down, Conventional Sales up Sharply, Foreclosures lowest since August 2007

From DataQuick: California June Home Sales

An estimated 41,027 new and resale houses and condos sold statewide last month. That was down 6.9 percent from a revised 44,087 in May, and down 3.5 percent from 42,513 sales in June 2012, according to San Diego-based DataQuick.

California June sales have varied from a low of 35,202 in 2008 to a high of 76,669 in 2004. Last month's sales were 16.8 percent below the average of 49,301 sales for all the months of June since 1988, when DataQuick's statistics begin.
...
Of the existing homes sold last month, 10.0 percent were properties that had been foreclosed on during the past year – the lowest level since foreclosure resales were 9.4 percent of the resale market in August 2007. Last month’s figure was down from a revised 11.3 percent in May and 24.9 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 16.0 percent of the homes that resold last month. That was down from an estimated 16.8 percent the month before and 24.3 percent a year earlier.
...
Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached several years ago. Financing with multiple mortgages is low, while down payment sizes are stable, DataQuick reported.
emphasis added

Sales are down year-over-year, but the key is the percentage of distressed sales is down significantly - and the number of conventional sales are up about 40% year-over-year!

This is kind of a preview for the NAR June report that will be released tomorrow.  The headline June sales number will probably be below the consensus forecast, but the keys will be inventory and the increase in conventional sales (unfortunately the NAR doesn't do a good job of tracking distressed sales).

Unofficial Problem Bank list declines to 734 Institutions

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 19, 2013.

Changes and comments from surferdude808:

With the OCC releasing its actions through mid-June 2013 on Friday, there were many changes to the Unofficial Problem Bank List this week. For the week, there were 11 removals and three additions leaving the list at 734 institutions with assets of $267.2 billion. A year ago, the list held 905 institutions with assets of $349.7 billion.

This week the OCC and Federal Reserve terminated actions against 10 institutions. One has to go back to the week of April 27, 2012 when there were 11 terminations to find a week this busy. Actions were terminated against The Suffolk County National Bank of Riverhead, Riverhead, NY ($1.6 billion Ticker: SUBK); Sterling Bank and Trust, FSB, Southfield, MI ($893 million); Citizens National Bank of Texas, Waxahachie, TX ($605 million); Britton & Koontz Bank, N.A., Natchez, MS ($312 million Ticker: BKBK); Citizens Bank, National Association, Fort Scott, KS ($264 million); Rocky Mountain Bank, Jackson, WY; The First National Bank of Wamego, Wamego, KS ($153 million); Calusa National Bank, Punta Gorda, FL ($150 million); The First National Bank of Wellston, Wellston, OH ($95 million Ticker: MDWE); and The First National Bank of Sedan, Sedan, KS ($51 million). The other removal was Roebling Bank, Roebling, NJ ($156 million) through an unassisted acquisition.

The three additions this week were The Somerville National Bank, Somerville, OH ($178 million); RepublicBankAZ, N.A., Phoenix, AZ ($83 million); and Ruby Valley National Bank, Twin Bridges, MT ($81 million).

There is some news on Capitol Bancorp, Ltd. to pass along, a U.S. Bankruptcy judge will allow the company to sell its remaining seven banks at an auction. No other details on the auction have been made public.

Next Friday, we anticipate for the FDIC to release its actions through June 2013.

Existing Home Sales: Expect Below Consensus Sales

The NAR is scheduled to report June existing home sales on Monday. The consensus is for sales of 5.27 million on seasonally adjusted annual rate (SAAR) basis. However economist Tom Lawler is estimating the NAR will report a June sales rate of 4.99 million.

I'm reminded of the Damon Runyon line paraphrasing Ecclesiastes:

"The race is not always to the swift, nor the battle to the strong, but that's how the smart money bets."

Tom Lawler isn't always closer than the consensus, but that is the way to bet - and I expect existing home sales were less than the consensus in June.

Unfortunately a below consensus report also means more hand wringing about the "housing recovery".  That will be nonsense.

The problem is many people don't understand what "housing recovery" means.  There are really two recoveries: House prices and residential investment. Most people - homeowners and potential buyers - focus on prices, and for prices we should use the repeat sales indexes, and not the NAR median price (repeat sales indexes include Case-Shiller, CoreLogic, etc). What matters in the NAR report for prices is inventory and months-of-supply.

For GDP and jobs, the key is what the Bureau of Economic Analysis (BEA) calls "residential investment" (RI) . For existing homes, only the broker's commission is part of GDP, but for new homes the entire sales price is part of GDP. There are some spillover effects from home sales (furniture, etc), but those aren't included in RI.

If existing home sales decline there is only a minor impact on RI and GDP. When we talk about the "housing recovery" for jobs and GDP, existing home sales are mostly irrelevant - the focus should be on new home sales, housing starts and home improvement.

This is a reminder that the key number in the existing home sales report is not sales, but inventory. It is mostly visible inventory that impacts prices. When we look at sales for existing homes, the focus should be on the composition between conventional and distressed, not total sales.

Bottom line: I expect sales to be below the consensus, but for conventional sales to be increasing.  I also expect further evidence that inventory bottomed early this year.  And, oh, expect some more uninformed hand wringing!

Note: Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for 3 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Usually when there has been a fairly large spread (like the current month) between Lawler's estimate and the "consensus", Lawler has been closer.  As an example, last month the consensus was 5.00 million SAAR, Lawler's forecast was 5.18 million, and the NAR reported 5.20 million.

Note: The consensus average miss was 170 thousand with a standard deviation of 190 thousand.  Lawler's average miss was 70 thousand with a standard deviation of 50 thousand.

Schedule for Week of July 21st

The key reports this week are the June existing home sales on Monday, and the June new home sales report on Wednesday.

For manufacturing, the Richmond and Kansas City regional manufacturing surveys for July will be released this week.

----- Monday, July 22nd -----
8:30 AM ET: Chicago Fed National Activity Index for June. This is a composite index of other data.

10:00 AM: Existing Home Sales for June from the National Association of Realtors (NAR).

The consensus is for sales of 5.27 million on seasonally adjusted annual rate (SAAR) basis. Sales in May were at a 5.18 million SAAR.   Economist Tom Lawler is estimating the NAR will report a June sales rate of 4.99 million.

A key will be inventory and months-of-supply.

----- Tuesday, July 23rd -----
9:00 AM: FHFA House Price Index for May 2013. This was original a GSE only repeat sales, however there is also an expanded index that deserves more attention. The consensus is for a 0.8% increase

10:00 AM: Richmond Fed Survey of Manufacturing Activity for July. The consensus is for a reading of 8 for this survey, unchanged from June (Above zero is expansion).

----- Wednesday, July 24th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

9:00 AM: The Markit US PMI Manufacturing Index Flash for July. The consensus is for an increase to 52.8 from 52.2 in June.

10:00 AM: New Home Sales for June from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the May sales rate.

The consensus is for an increase in sales to 481 thousand Seasonally Adjusted Annual Rate (SAAR) in June from 476 thousand in May.

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

----- Thursday, July 25th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 341 thousand from 334 thousand last week.

8:30 AM: Durable Goods Orders for June from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

11:00 AM: Kansas City Fed Survey of Manufacturing Activity for July. The consensus is for a reading of 0 for this survey, up from minus 5 in June (Above zero is expansion).

----- Friday, July 26th -----
9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 84.0.

Krugman: How Much Should We Worry About A China Shock?

Quite a few people have asked me about China.   My view is the impact of a Chinese slowdown - or even recession - will be minimal on the US.

Note: As always, I recommend reading Michael Pettis' China Financial Markets website. He has been way ahead of the curve on China. (Pettis' site feed sometimes gets hacked - that is the joke at the bottom of Krugman's post today).

Paul Krugman discusses three possible impacts: How Much Should We Worry About A China Shock?

Suppose that those of us now worried that China’s Ponzi bicycle is hitting a brick wall (or, as some readers have suggested, a BRIC wall) are right. How much should the rest of the world worry, and why?

I’d group this under three headings:

1. “Mechanical” linkages via exports, which are surprisingly small.

2. Commodity prices, which could be a bigger deal.

3. Politics and international stability, which involves some serious risks.

So, on the first: this is what many people immediately think of. China’s economy stumbles; China therefore buys less from the rest of the world; and the result is a global slump. Or, maybe not so much.

Some quick, rough, but I think useful math: In 2011, the combined GDP of all the world’s economies not including China was slightly over $60 trillion. Meanwhile, Chinese imports of goods and services were about $2 trillion, or around 3 percent of the rest of the world’s GDP.

Now suppose that China has a slowdown of 5 percent relative to trend. Imports would fall more than this; typical estimates of the “income elasticity” of imports (the percentage change from a 1 percent change in GDP, other things equal) are around 2. So we could be looking at a 10 percent fall in Chinese imports — an adverse shock to the rest of the world of one-tenth of 3 percent,or 0.3 percent of GDP. Not nothing, but not [catastrophic].

There is more in Krugman's post. The mechanical trade impact is the one everyone worries about, and it really isn't a huge concern.  On the second point, the US does sell some commodities to China (Lumber prices started falling when Chinese buying slowed).   However, overall for the US, lower commodity prices is mostly a positive.

The last one - political unrest - is the scary one and is complete unknown.

Two more Q2 GDP Downgrades

From Reuters: Morgan Stanley cuts second quarter U.S. GDP forecast to 0.3 percent

Morgan Stanley economist Ted Wieseman, but the softness in June nonetheless prompted him to cut Morgan Stanley’s Q2 GDP estimate to 0.3 percent from 0.4 percent.

From Merrill Lynch:

This week we are marking to market both our growth and inflation forecasts. On the growth side, the story is simple. With most of the data in, our tracking model pegs 2Q GDP growth at just 0.9%. ... Clearly, the fiscal shock and weak global growth are undercutting the recovery. The main reasons for the downward revision in 2Q are weaker inventory accumulation and a wider trade deficit.

This weakness is not a fluke: it reflects weakness in many key growth indicators. ...

That said, the good news is that we don’t think the weakness will be persistent. The consumer looks healthier heading into 2H, and manufacturing is starting to improve thanks to autos. Low inventories in 2Q give capacity to rebuild in 3Q. Thus, we are revising up 3Q GDP growth to 2.0% from 1.5%, and continue to expect 2.5% in 4Q. We are not out of the woods yet, but conditions are improving.

And Mark Zandi of Moody's Analytics last week:

The thing that changed is the GDP number.... That is really coming in much weaker than anyone had expected. Certainly than I had expected earlier in the year. It's tracking slightly positive and it's possible that it could be a negative print in Q2.

This slowdown is probably related to the significant drag from fiscal policy. I expect the fiscal policy drag to diminish and growth to improve going forward.

DOT: Vehicle Miles Driven increased 0.9% in May

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by +0.9% (2.3 billion vehicle miles) for May 2013 as compared with May 2012. Travel for the month is estimated to be 262.1 billion vehicle miles.

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways.


Click on graph for larger image.

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

Currently miles driven has been below the previous peak for 66 months - over 5 years - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Gasoline prices were down in May compared to May 2012. In May 2013, gasoline averaged of $3.67 per gallon according to the EIA. In 2012, prices in May averaged $3.79 per gallon. However gasoline prices were up year-over-year in June and especially in July of this year, so I expect miles driven to be down year-over-year in July.

Gasoline prices are just part of the story.  The lack of growth in miles driven over the last 5 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take several more years before we see a new peak in miles driven. 

Brent and WTI Oil Futures: "The Spread is Dead"

From MarketWatch: WTI crude prices trade at premium to Brent

Prices for West Texas Intermediate crude oil on the New York Mercantile Exchange traded at a premium versus Brent crude prices on ICE futures Friday.

That was the first time WTI cost more than Brent crude since October 2010 ...

“Assuming our petroleum product consumption and exports remain at recent levels or more, then the spread is dead.” [said Richard Hastings, a macro strategist at Global Hunter Securities]

Click on graph for larger image.

For the last few years there have been some capacity issues at Cushing (see Jim Hamilton's post Prices of gasoline and crude oil for a discussion of the issues).

As Hamilton noted:

[A]n increase in production in Canada and the central U.S. combined with a decrease in U.S. consumption has led to a surplus of oil in the central U.S. This overwhelmed existing infrastructure for cheap transportation of crude from Cushing to the coast, causing a big spread to develop between the prices of WTI and Brent.

The spread has been closing as more infrastructure has been put in place, US demand has increased, and global demand (Brent) has slowed. At one point Brent was selling for about 25% more than WTI (even though they are comparable quality). Right now the "spread is dead".

BLS: State unemployment rates were "little changed" in June

Note: This data was released yesterday.  From the BLS: Regional and state unemployment rates were little changed in June

Twenty-eight states had unemployment rate increases, 11 states had decreases, and 11 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada had the highest unemployment rate among the states in June, 9.6 percent. The next highest rates were in Illinois and Mississippi, 9.2 percent and 9.0 percent, respectively. North Dakota again had the lowest jobless rate, 3.1 percent.

Click on graph for larger image in graph gallery.

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

The size of the blue bar indicates the amount of improvement - Michigan and Nevada have seen the largest declines and many other states have seen significant declines (California, Florida and more).

The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in only three states: Nevada, Illinois, and Mississippi.  This is the fewest states with 9% unemployment since 2008.

For some of the sand states (largest real estate bubble states), the improvement has been significant. The unemployment rate in California has declined from 10.6% in June 2012 to 8.5% in June 2013. The unemployment rate in Florida has declined from 8.8% in June 2012 to 7.1% in June 2013. 

The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 9 states with an unemployment rate above 11% (red).

Currently only three states have an unemployment rate above 9% (purple), sixteen states above 8% (light blue), and 27 states above 7% (blue).

Janet Yellen for Fed Chair

I've been an admirer of Dr. Janet Yellen for a number of years (In 2009 I suggested her as an alternative to reappointing Ben Bernanke). I've linked to a couple of articles below and they suggest the choice is between Janet Yellen and Larry Summers - and the key difference is "leadership style".  However another key difference is that Yellen has a much better track record of correctly analyzing the economic situation, while Summers has frequently been wrong (but never in doubt). As an example, in 2005 Yellen was expressing concerns about housing:

" ...there are downside risks to economic growth relating to the housing market. This sector has been a key source of strength in the current expansion, and the concern is that, if house prices fell, the negative impact on household wealth could lead to a pullback in consumer spending. Certainly, analyses do indicate that house prices are abnormally high—that there is a "bubble" element, even accounting for factors that would support high house prices, such as low mortgage interest rates. So a reversal is certainly a possibility. Moreover, even the portion of house prices that is explained by low mortgage rates is at risk."

And in 2006 she was talking about "ghost towns" in the West:

According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. For example, a major home builder has told me that the share of unsold homes has topped 80 percent in some of the new subdivisions around Phoenix and Las Vegas, which he labeled the new "ghost towns" of the West.

What was Larry Summers saying about housing in 2005 and 2006? From the WaPo:

In August 2005, Raghuram Rajan, an economist at the University of Chicago’s Booth School of Business, predicted the financial crisis. And he did it at possibly the least friendly of venues: a conference of high-powered economists who had convened in part to honor Federal Reserve Chairman Alan Greenspan.

Rajan presented a paper titled “Has Financial Innovation Made the World Riskier?” His answer, put simply, was “Yes.” He was dismissed by the assembled masters of the universe. “Misguided,” said Larry Summers. But Rajan was right.

Note: I started this blog in January 2005, and I was writing frequently about the housing bubble - the coming housing bust - and the impact on the U.S. economy.  I quoted Yellen on housing, but never Summers (I'm pretty sure Summers didn't see the housing bubble).

I'd like to see reporters dig into the track record of both individuals instead of just reporting on "personality" differences. As an example, most people (not all) now understand that a little inflation is better than no inflation. Janet Yellen was able to convince Alan Greenspan of this view in the '90s. From Binyamin Appelbaum at the NY Times: Possible Fed Successor Has Admirers and Foes

In July 1996, the Federal Reserve broke the metronomic routine of its closed-door policy-making meetings to hold an unusual debate. The Fed’s powerful chairman, Alan Greenspan, saw a chance for the first time in decades to drive annual inflation all the way down to zero, achieving the price stability he had long regarded as the central bank’s primary mission.

But Janet L. Yellen, then a relatively new and little-known Fed governor, talked Mr. Greenspan to a standstill that day, arguing that a little inflation was a good thing. She marshaled academic research that showed it would reduce the depth and frequency of recessions, articulating a view that has prevailed at the Fed. And as the Fed’s vice chairwoman since 2010, Ms. Yellen has played a leading role in cementing the central bank’s commitment to keep prices rising about 2 percent each year.

Unfortunately most of the focus now seems to be on leadership style (I prefer Yellen's style), from a Bloomberg article: Yellen or Summers: Who'd Be Better at Running the Fed?

Where Yellen and Summers may differ most is in their leadership style. That may be the critical issue for a Fed that's trying to be more open about its thinking despite disagreements among its top policy makers. The Fed's minutes show Yellen as influential but not particularly loud and outspoken. It's safe to say Summers would be loud and outspoken -- and authoritarian rather than merely influential.

And from the LA Times: Obama may choose between two economists to replace Bernanke at Fed

President Obama's choice for replacing Federal Reserve Chairman Ben S. Bernanke probably comes down to a quiet consensus builder, who would be a historic pick, or one considered brilliant but difficult to work with.

I don't believe in the indispensable man (or woman), but I think Janet Yellen is the right person for the job.

Research: Labor force participation rate expected to stay flat through 2015

I've written frequently about the participation rate (the percent of the civilian noninstitutional population in the labor force). A few posts: Understanding the Decline in the Participation Rate, Update: Further Discussion on Labor Force Participation Rate, Merrill Lynch on Labor Force Participation Rate, Labor Force Participation Rate Research

The participation rate was expected to decline for structural reasons even before the great recession started (baby boomers retiring, younger Americans staying in school longer, etc.). A key question is how much of the recent decline in the participation rate was due to long term trends, and how much was cyclical (economic weakness)?

Here is some research from Macroeconomic Advisers: Where’s Labor Force Participation Heading?

• Fifty-five percent of the recent decline in the participation rate is due to structural factors that, on balance, will continue to exert downward pressure on participation through 2015.

• The other forty-five percent is cyclical and will gradually abate. However, the cyclical decline in participation has been larger and more persistent than in past cycles due to the unusually large increase in the average duration of unemployment during this cyclical episode.

• Going forward, the cyclical rebound in participation will roughly offset the continuing downward push of structural forces. Consequently, we project that in 2015, when the FOMC will be contemplating the first increase in the federal funds rate, the participation rate will be 63.4%, the same as in the second quarter of this year.

That projection for the participation rate implies that monthly changes in household employment averaging about 114,000 will be sufficient to stabilize the unemployment rate through 2015. Anything faster will push the unemployment rate down. To reach the FOMC’s threshold unemployment rate of 6.5% in the second quarter of 2015, as shown in our forecast, requires monthly changes in household employment averaging roughly 170,000 over the next 24 months, consistent with our forecast that monthly changes in establishment employment will average roughly 190,000 over that same period.

CR Note: A significant portion of the decline in the unemployment rate from 10.0% in October 2009 to 7.6% in June 2013 was related to a decline in the participation rate from 65.0% in Oct 2009 to 63.5% in June 2013. If the participation rate had held steady, the unemployment rate would be 9.7% (assuming an increase in the participation rate with the same employment level).

Now the participation rate is forecast to mostly move sideways - or maybe even increase a little in the short term - so we probably shouldn't expect a decline in the participation rate to help push down the unemployment rate over the next year or two. Instead, and decline in the unemployment rate will probably because of an increase in employment.

Longer term the participation rate will probably continue to decline until 2030 or 2040. I expect the rate to fall from the current 63.4% to around 60% in 2030 based on recent trends and demographics.

Detroit Files for Bankruptcy

From the WSJ: Detroit Files for Chapter 9 Bankruptcy

The city of Detroit filed for federal bankruptcy protection on Thursday afternoon ... the country's largest-ever municipal bankruptcy case.
...
The financial outlook has never been bleaker for the Motor City, which has shrunk from its peak of nearly two million people in 1950 to 700,000 today.
...
Most at risk under the bankruptcy case is the city's $11 billion in unsecured debt. That includes almost $6 billion in health and other benefits for retirees; more than $3 billion for retiree pensions; and about $530 million in general-obligation bonds.

The prediction of “hundreds of billions” of dollars in municipal bond defaults in 2011 never happened, however this one has been in the works for some time. A shrinking population makes the situation very difficult.

More from Brad Plummer at the WaPo: Detroit just filed for bankruptcy. Here’s how it got there.

To get a better sense of just how Detroit got into such dire straits, it’s worth browsing through the city’s official “Proposals for Creditors” from June and a separate May report on the city’s finances. Emergency manager Kevyn Orr laid out all the problems and economic headwinds facing Detroit ...

Freddie Mac: 30 Year Mortgage Rates Decline to 4.37% in Latest Weekly Survey

From Freddie Mac today: Mortgage Rates Cool Off

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates easing along with market concerns over the Federal Reserve's bond purchase program ...

30-year fixed-rate mortgage (FRM) averaged 4.37 percent with an average 0.7 point for the week ending July 18, 2013, down from last week when it averaged 4.51 percent. Last year at this time, the 30-year FRM averaged 3.53 percent.

15-year FRM this week averaged 3.41 percent with an average 0.7 point, down from last week when it averaged 3.53 percent. A year ago at this time, the 15-year FRM averaged 2.83 percent.

Click on graph for larger image.

This graph shows the 30 year and 15 year fixed rate mortgage interest rates from the Freddie Mac Primary Mortgage Market Survey®.  

30 year mortgage rates are up from 3.35% in early May, and 15 year mortgage rates are up from 2.56% over the last 2 months. 

The Freddie Mac survey started in 1971.

The second graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index.

The refinance index has dropped sharply recently (down 55% over the last 10 weeks) and will  continue to decline if rates stay at this level.

Philly Fed Manufacturing Survey indicates Solid Expansion in July

From the Philly Fed: July Manufacturing Survey

Manufacturing firms responding to the July Business Outlook Survey indicated that regional manufacturing conditions improved this month. All of the survey’s broadest current indicators were positive, and most showed improvement from last month. The surveyʹs indicators of future activity also showed a notable rise, suggesting that firms expect a pickup in business over the next six months.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 12.5 in June to 19.8, its highest reading since March 2011.

Labor market conditions showed a notable improvement this month. The current employment index, at 7.7, registered its first positive reading in four months.
emphasis added

This was above the consensus forecast of a reading of 9.0 for July.  Earlier in the week, the Empire State manufacturing survey also indicated faster expansion in July.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through July. The ISM and total Fed surveys are through June.

The average of the Empire State and Philly Fed surveys turned positive in June, and increased further in July.  This suggests a further rebound in the ISM report for July. 

Weekly Initial Unemployment Claims decline to 334,000

The DOL reports:

In the week ending July 13, the advance figure for seasonally adjusted initial claims was 334,000, a decrease of 24,000 from the previous week's revised figure of 358,000. The 4-week moving average was 346,000, a decrease of 5,250 from the previous week's revised average of 351,250.

The previous week was revised down from 360,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 decreased to 346,000.

The 4-week average has mostly moved sideways over the last few months.  Claims were below the 344,000 consensus forecast.

Thursday: Weekly Unemployment Claims, Philly Fed Mfg Survey, Bernanke

First, here is a price index for commercial real estate that I follow. From CoStar: Commercial Real Estate Recovery Accelerates in May

COMMERCIAL REAL ESTATE PRICES ADVANCE ACROSS THE BOARD IN MAY: The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—increased by 0.7% and 2.0%, respectively, in the month of May 2013, reflecting continued improvement in market fundamentals and increased investment activity. The value-weighted index, which is heavily influenced by larger transactions and typically tracks with high quality core real estate prices, has now increased by 41% from its most recent trough in 2010. For comparison, the equal-weighted index, which is influenced by smaller, more numerous opportunistic transactions, has improved by 10% from its bottom in 2011.
...
DISTRESS SALES DECLINE WITH IMPROVING FUNDAMENTALS: The percentage of commercial property selling at distressed prices declined to an average of 14.1% in April and May, the lowest two-month average on record since 2008. The decline in the number of distressed trades continues to support higher, more consistent pricing and has enhanced market liquidity by giving buyers and sellers greater confidence to do deals.
emphasis added

Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

Thursday:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for an decrease to 344 thousand from 360 thousand last week.

• At 10:00 AM, Testimony by Fed Chairman Ben Bernanke, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. The prepared testimony will be the same as delivered Wednesday, but the Q&A might be interesting.

• Also at 10:00 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of 9.0, down from 12.5 last month (above zero indicates expansion).

• Also at 10:00 AM, the Conference Board Leading Indicators for June. The consensus is for a 0.3% increase in this index.

Lawler: Update on June existing Home Sales and Table of Distressed Sales and Cash buyers for Selected Cities

From housing economist Tom Lawler:

Local realtor reports released since last Friday have been consistent with my early assessment that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.99 million in June, down 3.7% from May’s pace. Limited data suggest that a mild slowdown in all-cash (and investor) buying may be a reason for the dip in June’s sales pace.

CR Note: The NAR is scheduled to report June existing home sales on Monday, July 22nd.  Based on Tom's earlier estimate, the NAR will report inventory at around 2.2 million for June, and months-of-supply around 5.3 (up from 5.1 months in May). This would still be a very low level of inventory - probably the lowest for June since 2002 or so - but a 6.3% year-over-year decline in inventory would be the smallest year-over-year decline since early 2011 (when inventory started to decline sharply).  Note: In May, inventory was down 10.1% compared to May 2012.   These smaller year-over-year declines suggest inventory bottomed earlier this year.

Tom Lawler also sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in June.

CR Note: Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in many areas. 

Also there has been a decline in foreclosure sales in all of these cities except Springfield, Ill.  Even short sales are now starting to decline year-over-year. 

Also, as Tom noted, the percent of cash buyers seems to be down a little in most areas.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Jun-13	Jun-12	Jun-13	Jun-12	Jun-13	Jun-12	Jun-13	Jun-12
Las Vegas	31.0%	34.2%	9.0%	27.8%	40.0%	62.0%	55.3%	54.0%
Reno	24.0%	37.0%	6.0%	21.0%	30.0%	58.0%
Phoenix	12.7%	32.8%	8.7%	14.1%	21.5%	46.8%	37.5%	46.9%
Sacramento	23.2%	31.0%	7.5%	19.7%	30.7%	50.7%	29.9%	33.4%
Minneapolis	6.0%	9.6%	15.7%	25.1%	21.7%	34.6%
Mid-Atlantic	7.6%	10.2%	6.3%	8.7%	13.9%	18.9%	15.9%	16.5%
Orlando	18.7%	28.5%	18.1%	25.2%	36.8%	53.7%	49.8%	51.7%
So. California*	16.2%	24.4%	9.1%	24.4%	25.3%	48.8%	30.2%	32.3%
Hampton Roads					22.8%	28.8%
Northeast Florida					35.6%	39.9%
Chicago					28.0%	33.0%
Toledo							28.1%	33.0%
Tucson							32.8%	32.9%
Omaha							14.9%	14.4%
Pensacola							29.8%	34.3%
Des Moines							17.5%	18.9%
Houston			8.4%	16.8%
Memphis*			18.2%	29.6%
Birmingham AL			19.4%	26.4%
Springfield IL			12.0%	9.2%
*share of existing home sales, based on property records

Fed's Beige Book: Economic activity increased "at a modest to moderate pace"

Fed's Beige Book "Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before July 8, 2013."

Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to increase at a modest to moderate pace since the previous survey. Manufacturing expanded in most Districts since the previous report, with many Districts reporting increases in new orders, shipments, or production. Most Districts noted that overall consumer spending and auto sales increased during the reporting period. Activity in a wide variety of nonfinancial services was stable or increased in most reporting Districts. Transportation was stable or increased in several Districts. Tourism remained strong in some reporting Districts, although several Districts noted softness from bad weather. Residential real estate and construction activity increased at a moderate to strong pace in all reporting Districts. Commercial real estate market conditions and construction continued to improve across the Districts. Banking conditions generally improved across the Districts. Credit quality improved, while credit standards remained largely unchanged. Agricultural conditions were mixed, as weather patterns varied, while extraction was generally stable or increased.

And on real estate:

Residential real estate activity increased at a moderate to strong pace in most Districts. Most Districts reported increases in home sales. Cleveland noted that June sales of single-family homes were down compared with earlier in the spring but up from last year. Boston, New York, Minneapolis, Kansas City, Dallas, and San Francisco noted strong residential real estate markets. Home prices increased throughout the majority of the reporting Districts. Boston, New York, Richmond, Atlanta, Minneapolis, Kansas City, and Dallas noted low or declining home inventories and upward pressures on home prices in some areas. Residential construction activity also improved moderately across the Districts, and contacts in New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco reported faster growth in multi-family construction, in particular.

Commercial real estate market conditions continued to improve across most Districts. New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco reported modest to moderate improvements in nonresidential real estate activity. Dallas reported strong growth in leasing activity for office and industrial space. Boston and Richmond reported that commercial real estate conditions were holding steady or improving, depending on location. Nonresidential construction activity was stable or increased throughout the nation.
emphasis added

Residential real estate continues to be a strong sector for the economy.  Overall this was similar to the previous beige book with economic activity increasing at a "modest to moderate" pace.

Housing Starts: A few comments

A few comments:

• Overall the housing starts report was disappointing with total starts at a 836 thousand rate on a seasonally adjusted annual rate basis (SAAR) in June. This was well below the consensus forecast of 951 thousand SAAR.   Most of the decline was related to the volatile multi-family sector.

• Single family permits were at the highest level since May 2008, and it appears single family starts will increase over the next few months.

• Also housing starts are up significantly from the same period last year. Over the first half of 2013, multi-family starts are up close to 34% from the same period in 2012, and single family starts are up 20%. Those are significant increases in activity. 

• Even with this significant year-over-year increase, housing starts are still very low. Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. This suggests significantly more growth in housing starts over the next few years.

Here 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.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind. It is interesting that completions have lagged so far behind starts, and this suggests completions will increase significantly later this year and into 2014 (completions lag starts by about 12 months).

However the level of multi-family starts over the last 12 months - almost to the level in late '90s and early 00's - suggests that future growth in starts will mostly come from single family starts.

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.

Starts are moving up and completions are following.  Usually single family starts bounce back quickly after a recession, but not this time because of the large overhang of existing housing units. 

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

Bernanke: Semiannual Monetary Policy Report to the Congress

Federal Reserve Chairman Ben Bernanke testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Financial Services, U.S. House of Representatives (starts at 10 AM ET):

I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions--which have tightened recently--were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.
emphasis added

Here is the C-Span Link

Here is the Bloomberg TV link.