Reading Rates: MBA Application Survey – October 19 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) increased 7 basis points to 4.26% since last week while the purchase application volume declined a notable 8.8% and the refinance application volume plunged 16.6% over the same period.

With rates at or near generational lows (including the 10-year T-Bill) and the FOMC members becoming more dovish by the day, it will be interesting to see where rates will go as clear details of QE3, likely to be focused more on long term rates, are revealed.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings October 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that all measures increased in October with the composite HMI index climbing to 18 while the "buyer traffic" index remained near record lows as home builders continue to plod through the weakest activity seen in generations.

While all indicators made notable increases in October, it's important to note that conditions still remain at epically distressed levels.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Hong Kong Bubble?: Hong Kong Residential Property Prices August 2011

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in August, the price of residential properties declined 0.30% since July but climbed 20.4% above the level seen in August 2010.

It appears that after a stunning run of monthly increases that saw prices increase dramatically, prices are beginning to show a pullback of sorts with the most measures declining on the month.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

Production Pullback: Industrial Production September 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing mild improvement with total industrial production increasing 0.19% from August and rising 3.22% above the level seen in September 2010.

Capacity utilization increased 0.09% from August climbing just 2.24% above the level seen in September of 2010 to stand at 77.4%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.

The Empire State Manufacturing Survey: October 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed continued notable weakness and again indicated contraction for current manufacturing activity with the current activity index remaining below zero at -8.48 while assessments of future activity worsened with the future activity index falling to just 6.74.

Current prices paid declined to 22.47 while current new orders improved to 0.16 and assessments of future new orders slipping to 12.36.

University of Michigan Survey of Consumers October 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for October indicated continued weakness in consumer sentiment with a reading of 57.5 falling 15.07% below the level seen last year while one year inflation expectations declined to 3.2%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) declined to 47, and the Current Economic Conditions Index declined to 73.8.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining at levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.

Conspicuous Correlation: Retail Sales September 2011

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a notable 1.1% increase from August and climbing 7.9% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 0.36% from August and increased 3.54% above the level seen in September 2010 while, adjusting for inflation, “real” discretionary retail sales declined 0.33% over the same period.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims October 13 2011

Today’s jobless claims report showed an decline to both initial and continued unemployment claims as a slight rising trend was called into question for initial claims.

Seasonally adjusted “initial” unemployment declined 1,000 to 404,000 claims from last week’s revised 405,000 claims while seasonally adjusted “continued” claims declined by 55,000 resulting in an “insured” unemployment rate of 2.9%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.55 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.16 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.71 million people on state and federal unemployment rolls.

Economic Jolt: Job Openings and Labor Turnover August 2011

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” declined 5.09% since July but remaining 7.86% above the level seen in August 2010 while private non-farm job “hires” increase 0.59% from July climbing 3.53% above the level seen in August 2010

Job “layoffs and discharges” declined 1.27% from July but climbing a slight 0.26% above the level seen last year while quitting activity increased 3.81% from July and 10.6% above the level seen in August 2010.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

On The Pulse: Ceridian-UCLA Pulse of Commerce Index September 2011

The latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) suggests that economic activity slowed again in September with the seasonally adjusted index declining 1.05% from August and dropping 0.22% below the level seen in September 2010.

Currently, the PCI appears to be joining a host of other sensitive indicators that currently appear to be signaling notable economic weakness and looming recession.  

The three month moving average of the PCI declined notably from August indicating that the September (released next week) Industrial Production data will likely show a similar trend.

Reading Rates: MBA Application Survey – October 12 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) increased 4 basis points to 4.15% since last week while the purchase application volume increased 1.1% and the refinance application volume increased 1.3% over the same period.

With rates at or near generational lows (including the 10-year T-Bill) and the FOMC members becoming more dovish by the day, it will be interesting to see where rates will go as clear details of QE3, likely to be focused more on long term rates, are revealed.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Radar Watching: August 2011

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines and, after having broken well below the low set in March of 2009 (double-dipping) earlier this year and then rising throughout the spring/summer selling season, now trends clearly appear to have topped out as the peak summer activity is firmly established.

The latest data shows that as of mid-August, prices have declined 4.52% below the level seen in August 2010 while continuing to turn down from a seasonal peak reached in mid-June.

With the spring/summer selling season now complete and sliding prices now registering with regularity, there is nowhere for prices to go but down. Look for a declining trend to continue to materialize and likely run into March or April of 2012.

Fannie Mae Delinquencies: August 2011

The latest release of the Fannie Mae Monthly Summary indicated that total serious single family delinquency declined while still remaining at distressed levels.

In August, 3.10% of non-credit enhanced loans went seriously delinquent while the level was 9.57% of credit enhanced loans resulting in an overall total single family delinquency of 4.03%.

The following charts (click for larger ultra-dynamic and surf-able chart) show what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers.

ECRI Weekly Leading Index: Recession Ho!

The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index has weekend yet again bringing the all important “growth” component to a value of -8.1 and triggering a firm recession call on the part of the ECRI’s Chief Operations Officer Lakshman Achuthan.

The chart above shows the ECRI’s Weekly Leading Index growth component since 1968. Notice that this index has turned notable negative which, along with an erosion in many other key macro-economic series, appears to be signaling recession is nigh.

The following video of Achuthan with Bloomberg’s Tom Keene is well worth the watch as Achuthan details his reasoning for his recession call depicting it as “inescapable” as “contagion in the forward looking indicators” look like “wildfire”.

Envisioning Employment: Employment Situation September 2011

Today’s Employment Situation Report showed that in September, net nonfarm payrolls increased slightly from August with private nonfarm payrolls adding 137,000 jobs and the unemployment rate remaining flat at 9.1% over the same period.

Net private sector jobs increased 0.13% since last month climbing 1.65% above the level seen a year ago but but remained a whopping 5.41% below the peak level of employment seen in December 2007.