Thursday 30 June 2016

CoStar: Commercial Real Estate prices increased in May

Here is a price index for commercial real estate that I follow. 

From CoStar: Composite Price Indices Resume Solid Growth Boosted By Strong Net Absorption
PRICE INDICES RESUMED SOLID GROWTH IN MAY. Both of CCRSI’s two major composite price indices advanced by more than 1% in the month of May 2016, erasing earlier-year declines. After the two major indices backtracked in the first quarter of 2016 amid global economic uncertainty and a seasonal slowdown in investment activity, price growth within the commercial real estate sector during May 2016 returned to the average monthly pace set in the previous several years. The equal-weighted U.S. Composite Index rose 1.1% and the value-weighted U.S. Composite Index advanced 1.2% in May 2016, placing the value-weighted index at its highest level this cycle.

HEALTHY CRE SPACE ABSORPTION CONTRIBUTED TO STRONG PRICE GAINS. Demonstrating the overall demand for CRE space, net absorption across the three major property types—office, retail and industrial—is projected to total 688.5 million square feet for the 12-month period ending in June 2016, a 9.5% increase from the same period ending in June 2015. ...
emphasis added
Commercial Real Estate Prices Click on graph for larger image.

This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes.

The value-weighted index increased 1.2% in May and is up 2.2% year-over-year.

The equal-weighted index increased 1.1% in May and is up 6.7% year-over-year.

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

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Wednesday 29 June 2016

Zillow Forecast: Expect About the Same Growth in May for the Case-Shiller Indexes

The Case-Shiller house price indexes for April were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: May Case-Shiller Forecast: April's Modest Monthly Slowdown Should Continue
April Case-Shiller data showed seasonally adjusted monthly home price growth that was slightly weaker than expected, and annual growth at a pace in line with recent months. Looking ahead, Zillow’s May Case-Shiller forecast calls for more of the same, with seasonally adjusted monthly growth in the 10- and 20-city indices falling slightly from April while annual growth stays largely flat.

The May Case-Shiller National Index is expected to grow 5 percent year-over-year and 0.1 percent month-to-month, both unchanged from April. We expect the 10-City Index to grow 4.7 percent year-over-year and 0.1 percent from April. The 20-City Index is expected to grow 5.3 percent between May 2015 and May 2016 and 0.1 percent from April.

Zillow’s May Case-Shiller forecast is shown in the table below. These forecasts are based on today’s April Case-Shiller data release and the May 2016 Zillow Home Value Index (ZHVI). The May Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, July 26.
The year-over-year change for the 20-city index will probably be slightly lower in the May report than in the April report.  The change for the National index will probably be about the same.

Zillow forecast for Case-Shiller

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Personal Income increased 0.2% in May, Spending increased 0.4%

The BEA released the Personal Income and Outlays report for May:
Personal income increased $37.1 billion, or 0.2 percent ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $53.5 billion, or 0.4 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in May, compared with an increase of 0.8 percent in April. ... The price index for PCE increased 0.2 percent in May, compared with an increase of 0.3 percent in April. The PCE price index, excluding food and energy, increased 0.2 percent, the same increase as in April.

The May PCE price index increased 0.9 percent from May a year ago. The May PCE price index, excluding food and energy, increased 1.6 percent from May a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through February 2016 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was slightly less than expected.  And the increase in PCE was at the 0.4% increase consensus.

On inflation: The PCE price index increased 0.9 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in May.

Using the two-month method to estimate Q2 PCE growth, PCE was increasing at a 4.1% annual rate in Q2 2016 (using the mid-month method, PCE was increasing 4.1%). This suggests solid PCE growth in Q2.

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Tuesday 28 June 2016

Wednesday: Personal Income and Outlays, Pending Home Sales

NOTE: Fed Chair Yellen was scheduled to participate in a "Policy Panel" at the ECB Forum on Central Banking in Portugal on Wednesday. She has cancelled.  Mark Carney, Governor of the Bank of England and Chairman of the G20's Financial Stability Board, has also cancelled.

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

• At 8:30 AM, Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:00 AM, Pending Home Sales Index for May. The consensus is for a 1.0% decrease in the index.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Lower Despite Bond Market Weakness
Mortgage rates fell modestly today despite some weakness in underlying bond markets. Typically, when bond yields (which move inversely with bond prices) are rising, mortgage rates tend to be higher as well. That wasn't the case today for a few reasons. The most obvious reason is that bond markets didn't move that much. [30 year fixed mortgage rates are between 3 3/8% and 3 1/2% on best scenarios]
emphasis added
Here is a table from Mortgage News Daily:




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Real Prices and Price-to-Rent Ratio in April

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.0% year-over-year in April

The year-over-year increase in prices is mostly moving sideways now around 5%. In April, the index was up 5.0% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 3.0% below the bubble peak.   However, in real terms, the National index is still about 17.1% below the bubble peak.

Nominal House Prices


Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through April) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to November 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to June 2005 levels, and the CoreLogic index (NSA) is back to June 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to January 2004 levels, the Composite 20 index is back to November 2003, and the CoreLogic index back to November 2003.

In real terms, house prices are back to late 2003 levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to August 2003 levels, the Composite 20 index is back to June 2003 levels, and the CoreLogic index is back to April 2003.

In real terms, and as a price-to-rent ratio, prices are back to late 2003  - and the price-to-rent ratio maybe moving a little more sideways now.

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Case-Shiller: National House Price Index increased 5.0% year-over-year in April

S&P/Case-Shiller released the monthly Home Price Indices for April ("April" is a 3 month average of February, March and April prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Prices Continue Gains in April According to the S&P/Case-Shiller Home Price Indices
The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, reported a 5.0% annual gain in April, down from 5.1% the previous month. The 10-City Composite posted a 4.7% annual increase, down from 4.8% in March. The 20-City Composite reported a yearover-year gain of 5.4%, down from 5.5% from the prior month.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 1.0% in April. The 10-City Composite recorded a 1.0% month-over-month increase, while the 20-City Composite posted a 1.1% increase in April. After seasonal adjustment, the National Index recorded a 0.1% month-overmonth increase, the 10-City Composite posted a 0.3% increase, and the 20-City Composite reported a 0.5% month-over-month increase. After seasonal adjustment, 15 cities saw prices rise, two cities were unchanged, and three cities experienced negative monthly prices changes.
emphasis added
Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 10.6% from the peak, and up 0.3% in April (SA).

The Composite 20 index is off 9.0% from the peak, and up 0.5% (SA) in April.

The National index is off 3.0% from the peak, and up 0.1% (SA) in April.  The National index is up 31.0% from the post-bubble low set in December 2011 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.7% compared to April 2015.

The Composite 20 SA is up 5.4% year-over-year..

The National index SA is up 5.0% year-over-year.

Note: According to the data, prices increased in 16 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

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Q1 GDP Revised Up to 1.1% Annual Rate

From the BEA: Gross Domestic Product: First Quarter 2015 (Third Estimate)
Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 1.1 percent in the first quarter of 2016, according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2015, real GDP increased 1.4 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 0.8 percent. With the third estimate for the first quarter, the general picture of economic growth remains the same; exports increased more than previously estimated ...
emphasis added
Here is a Comparison of Third and Second Estimates. PCE growth was revised down from 1.9% to 1.5%. Residential investment was revised down from 17.1% to 15.6%.  This was close to the consensus forecast.

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Monday 27 June 2016

Tuesday: GDP, Case-Shiller House Prices

NOTE: Fed Chair Yellen was scheduled to participate in a "Policy Panel" at the ECB Forum on Central Banking in Portugal on Wednesday. She has cancelled.  Mark Carney, Governor of the Bank of England and Chairman of the G20's Financial Stability Board, has also cancelled.

Tuesday:
• At 8:30 AM ET, Gross Domestic Product, 1st quarter 2016 (Third estimate). The consensus is that real GDP increased 1.0% annualized in Q1, revised up from a 0.8% increase.

• At 9:00 AM, S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April prices. The consensus is for a 5.5% year-over-year increase in the Comp 20 index for April. The Zillow forecast is for the National Index to increase 5.1% year-over-year in April.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for June. This is the last of the regional Fed surveys for June.

From Tim Duy: Fed Once Again Overtaken By Events
With global financial markets reeling in the wake of Brexit - Britain's unforced error as a political gamble went too far - the Fed is back on the sidelines. A July hike was already out of the question before Brexit, while September was never more than tenuous, depending on the data falling in place just right. Now September has moved from tenuous to "what are you thinking?" ...
...
Bottom Line. The Fed will stand down for the moment; where they go down the road depends upon the depth and length of current disruption. I think at this point it goes without saying that if you hear a Fed speaker talking about July being on the table or confidently warning about two or three rate hikes this year, you should ignore them. Perhaps we can have that conversation later with regards to the December meeting, but certainly not now. ...


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Dallas Fed: Regional Manufacturing Activity declined again in June

From the Dallas Fed: Texas Manufacturing Activity Declines Again
Texas factory activity declined again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second consecutive negative reading but rose from -13.1 to -7.0, suggesting the pace of contraction eased somewhat from May.

Other measures of current manufacturing activity also reflected continued declines this month. The new orders index held steady at -14.2, while the growth rate of orders index fell four points to -18.6. The capacity utilization and shipments indexes remained negative for a second month but edged up, coming in at -9.3 and -8.6, respectively.

Perceptions of broader business conditions stayed pessimistic in June. The general business activity index has been negative since January 2015 and came in at -18.3 this month, up slightly from its May reading.

Labor market measures indicated a sixth month of contraction in a row in June. The employment index fell to -11.5, its lowest reading since November 2009. The decline in the index was largely due to a falloff in the share of firms adding to headcounts....
emphasis added
Still grim in the Dallas region.  The impact of lower oil prices is still impacting manufacturing.

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Black Knight: House Price Index up 1.0% in April, Up 5.4% year-over-year

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: Black Knight Home Price Index Report: April Transactions -- U.S. Home Prices Up 1.0 Percent for the Month; Up 5.4 Percent Year-Over-Year
• U.S. home prices were up 1.0 percent for the month, and have gained 5.4 percent from one year ago

• At $260K, the U.S. HPI is up over 30 percent from the market’s bottom and is now just 2.9 percent off its June 2006 peak

• 14 of the nation's 40 largest metropolitan areas hit new peaks in April:
◦Austin, TX ($299K)
◦Boston, MA ($419K)
◦Charlotte, NC ($207K)
◦Dallas, TX ($230K)
◦Denver, CO ($351K)
◦Houston, TX ($225K)
◦Kansas City, MO ($180K)
◦Nashville, TN ($231K)
◦Pittsburgh, PA ($190K)
◦Portland, OR ($346K)
◦San Antonio, TX ($200K)
◦San Francisco, CA ($765K)
◦San Jose, CA ($921K)
◦Seattle, WA ($401K)
The year-over-year increase in the index has been about the same for the last year.

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Sunday 26 June 2016

Sunday Night Futures

From Goldman Sachs economist Jan Hatzius and Sven Jari Stehn: After the Brexit Shock
Following the UK referendum, we have downgraded our global growth forecast, sharply in the UK and more modestly elsewhere. Increased uncertainty and deteriorating terms of trade are likely to subtract a cumulative 2¾% from UK GDP, and we now expect the economy to enter a mild recession by early 2017. We estimate the cumulative hit to Euro area GDP at ½% and have cut our growth forecast over the next two years to 1¼%. We have also slightly shaved our H2 2016 forecast for US growth to 2%
...
However, the risks to this forecast are significant and further downward adjustments could well follow.
Weekend:
Schedule for Week of June 26, 2016

Largest 5-year Population Cohorts are now "20 to 24" and "25 to 29"

June 2016: Unofficial Problem Bank list declines to 203 Institutions, Q2 2016 Transition Matrix

Monday:
• At 10:30 AM ET, the Dallas Fed Survey of Manufacturing Activity for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P are down 22 and DOW futures are down 151 (fair value).

Oil prices were down over the last week with WTI futures at $47.54 per barrel and Brent at $48.41 per barrel.  A year ago, WTI was at $59, and Brent was at $60 - so prices are down 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.31 per gallon (down about $0.45 per gallon from a year ago).

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Saturday 25 June 2016

Schedule for Week of June 26, 2016

The key economic reports this week are the third estimate of Q1 GDP,  May personal income and outlays, June vehicle sales, the June ISM manufacturing, and Case-Shiller House prices.

----- Monday, June 27th -----

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

----- Tuesday, June 28th -----

8:30 AM ET: Gross Domestic Product, 1st quarter 2016 (Third estimate). The consensus is that real GDP increased 1.0% annualized in Q1, revised up from a 0.8% increase.

Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the March 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.5% year-over-year increase in the Comp 20 index for April. The Zillow forecast is for the National Index to increase 5.1% year-over-year in April.

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

----- Wednesday, June 29th -----

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

8:30 AM: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:30 AM: Discussion, Fed Chair Janet Yellen, Policy Panel, ECB Forum on Central Banking, Linho Sintra, Portugal

10:00 AM: Pending Home Sales Index for May. The consensus is for a 1.0% decrease in the index.

----- Thursday, June 30th -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 266 thousand initial claims, up from 259 thousand the previous week.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 50.5, up from 49.3 in May.

----- Friday, July 1st -----

ISM PMI10:00 AM: ISM Manufacturing Index for June. The consensus is for the ISM to be at 51.5, up from 51.3 in May.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion at 51.3% in May. he employment index was at 49.2%, and the new orders index was at 55.7%.

10:00 AM: Construction Spending for May. The consensus is for a 0.6% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for June. The consensus is for light vehicle sales to decrease to 17.3 million SAAR in June from 17.4 million in May (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the May sales rate.

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Friday 24 June 2016

Philly Fed: State Coincident Indexes increased in 38 states in May

From the Philly Fed:
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2016. In the past month, the indexes increased in 38 states, decreased in eight, and remained stable in four, for a one-month diffusion index of 60. Over the past three months, the indexes increased in 42 states, decreased in seven, and remained stable in one, for a three-month diffusion index of 70.
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

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

In May, 40 states had increasing activity including minor increases.

Five states have seen declines over the last 6 months, in order they are Wyoming (worst), North Dakota, Louisiana, Alaska and Oklahoma - mostly due to the decline in oil prices.

Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is mostly green now.

Source: Philly Fed.

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Price Briefing 17-23 June 2016

Future of European markets uncertain as UK votes to leave the EU; fluorspar prices experience further drops; chromite market stabilises; oil price holds barite steady.

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Thursday 23 June 2016

New lows set for fluorspar price negotiations

While the industry enters into negotiations for Q3 2016 contracts, discussions for acid grade fluorspar material have hit new lower price levels.

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Kansas City Fed: Regional Manufacturing Activity "Increased Slightly" in June

From the Kansas City Fed: Tenth District Manufacturing Activity Increased Slightly
The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Megan Williams, survey manager and associate economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity increased slightly.

Regional factory activity posted a positive reading for the first time since January 2015, as energy prices have stabilized somewhat and orders have increased,” said Williams. “Additionally, firms continue to expect further improvements for the months ahead.”
...
The month-over-month composite index was 2 in June, up from -5 in May and -4 in April ... The employment index edged up from -13 to -4, its highest level in over a year
emphasis added
The Kansas City region was hit hard by lower oil prices.  Now that "energy prices have stabilized somewhat", manufacturing has stopped contracting (at least for one month).

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Competition stiffens in talc spot market

In the talc spot trading market competition is intensifying, putting downwards pressure on prices. Meanwhile, European traders await the outcome of the European Union Referendum, in which a UK split from the continent could have a negative impact.

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Wednesday 22 June 2016

A Few Comments on May Existing Home Sales

Earlier: Existing Home Sales increased in May to 5.53 million SAAR

As usual, housing economist Tom Lawler nailed the NAR report.
I project that May existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.55 million in May
For existing homes, inventory is still key.  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 5.7% year-over-year in May). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in May (red column) were the highest for May since 2006 (NSA).

This is a solid first five months for 2016.

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Tuesday 21 June 2016

Wednesday: Existing Home Sales, Fed Chair Yellen

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

• At 9:00 AM, FHFA House Price Index for April 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.6% month-to-month increase for this index.

• At 10:00 AM, Existing Home Sales for May from the National Association of Realtors (NAR). The consensus is for 5.57 million SAAR, up from 5.45 million in April. Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in May.

• Also at 10:00 AM, Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

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

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CoreLogic: Orange County home prices above Bubble Peak

From Andrew Khouri at the LA Times: Orange County home prices rise above their 2007 bubble-era peak
Median home prices in Orange County rose in May to surpass their bubble-era peak in 2007, making the county the first in Southern California where that has happened, according to a new report.
...
May's median in Los Angeles County — $525,000 — is still 4.5% below the county’s bubble-era peak of $550,000. Riverside County is 23.6% below, San Bernardino County 25% below, San Diego County 5.3% below and Ventura County 17.9% below.
This brings up a few important points ...

1. This is the median price - not a repeat sales index - and the median price can be impacted by the mix of homes sold (not as useful as a repeat sales index).

2. As Khouri notes in the article, these are nominal prices. When adjusted for inflation (real prices), prices are still 13% below the bubble peak.

3.  This is not a bubble.  A bubble requires both excess appreciation and speculation, and there is a little evidence of speculation - these are qualified buyers who will not default if prices decline (unlike many buyers during the bubble).

4. Note that the central / coastal areas are closer to the previous peak than the outlying areas.  This is the typical pattern; the price increases start in the central / coastal areas, and then move inland as the cycle matures.  Plus the inland areas saw the most speculation during the bubble - especially using subprime loans - and it will take longer for prices to reach a new peak.





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Yellen: Semiannual Monetary Policy Report to the Congress

Federal Reserve Chair Janet Yellen testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C. (starts at 10 AM ET).  An excerpt on risks:
The latest readings on the labor market and the weak pace of investment illustrate one downside risk--that domestic demand might falter. In addition, although I am optimistic about the longer-run prospects for the U.S. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future. Vulnerabilities in the global economy also remain. Although concerns about slowing growth in China and falling commodity prices appear to have eased from earlier this year, China continues to face considerable challenges as it rebalances its economy toward domestic demand and consumption and away from export-led growth. More generally, in the current environment of sluggish growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of and appetite for risk can change abruptly. One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A U.K. vote to exit the European Union could have significant economic repercussions. For all of these reasons, the Committee is closely monitoring global economic and financial developments and their implications for domestic economic activity, labor markets, and inflation.
emphasis added
Here is the C-Span Link

Here is the Bloomberg TV link.

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Monday 20 June 2016

Phoenix Real Estate in May: Sales up 6%, Inventory up YoY

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

Inventory was up 5.5% year-over-year in May.  This is the third consecutive months with a YoY increase in inventory, following fifteen consecutive months of YoY declines in Phoenix.  This could be a significant change.

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

1) Overall sales in May were up 6.4% year-over-year.

2) Cash Sales (frequently investors) were down to 21.8% of total sales.

3) Active inventory is now up 5.5% 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.

Now inventory is increasing a little again, and - if this trend continues in Phoenix - price increases will probably slow.

May Residential Sales and Inventory, Greater Phoenix Area, ARMLS
Sales YoY
Change
Sales
Cash
Sales
Percent
Cash
Inventory YoY
Change
Inventory
May-08 5,6371 --- 1,062 18.8% 54,1611 ---
May-09 9,284 64.7% 3,592 38.7% 39,902 -26.3%
May-10 9,067 -2.3% 3,341 36.8% 41,326 3.6%
May-11 9,811 8.2% 4,523 46.1% 31,661 -23.4%
May-12 8,445 13.5% 3,907 46.3% 20,162 -36.3%
May-13 9,440 11.8% 3,669 38.9% 19,734 -2.1%
May-14 7,442 -21.2% 2,193 29.5% 29,091 47.4%
May-15 8,293 11.4% 1,988 24.0% 24,616 -15.4%
May-16 8,820 6.4% 1,931 21.9% 25,980 5.5%
1 May 2008 does not include manufactured homes, ~100 more


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India, Needing Jobs, Eases Rules on Foreign Investment


By GEETA ANAND and HARI KUMAR from NYT World http://ift.tt/28Ls0Cz
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Wal-Mart to Sell China e-Commerce Unit to JD.com


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Graphite prices see upward spike

Chinese producers have succeeded in lifting flake graphite prices on the back of growth in domestic refractories production and declining stockpiles. Amorphous could benefit from the government’s Lutang investment project, however overcapacity in the sector means prices are unlikely to make any gains in the short term.

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Days After RBI Chief Steps Down, India Eases Foreign Investment Rules


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Factbox: India Relaxes Foreign Investment Norms in Several Sectors


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India Opens the Door for Apple Retail With New Foreign Investment Rules


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FNC: Residential Property Values increased 5.6% year-over-year in April

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their April 2016 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.1% from March to April (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 1.6% (NSA), the 20-MSA RPI increased 1.5%, and the 30-MSA RPI increased 1.4% in April. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

From FNC: FNC Index: April Home Prices Up 1.1%
The latest FNC Residential Price Index™ (RPI) indicated U.S. home prices rose quickly in April, up 1.1% at a seasonally unadjusted rate. On a year-over-year basis, prices continue to enjoy modest growth, rising 5.6% from a year ago.
Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The index is still down 12.2% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through April 2016. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are also showing the year-over-year change in the mid single digit range.

Note: The April Case-Shiller index will be released on Tuesday, June 28th.

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Sunday 19 June 2016

Sunday Night Futures

The Brexit vote is on Thursday ...

Weekend:
Schedule for Week of June 19, 2016

From CNBC: Pre-Market Data and Bloomberg futures: S&P are up 14 and DOW futures are up 140 (fair value).

Oil prices were down over the last week with WTI futures at $48.24 per barrel and Brent at $49.39 per barrel.  A year ago, WTI was at $60, and Brent was at $61 - so prices are down 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.33 per gallon (down about $0.45 per gallon from a year ago).

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Saturday 18 June 2016

Schedule for Week of June 19, 2016

The key economic reports this week are New and Existing Home Sales for May.

Fed Chair Janet Yellen will deliver the Semiannual Monetary Policy Report to the Congress on Tuesday and Wednesday.

----- Monday, June 20th -----

No economic releases are scheduled.

----- Tuesday, June 21st -----

10:00 AM ET: Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

----- Wednesday, June 22nd -----

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

9:00 AM: FHFA House Price Index for April 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.6% month-to-month increase for this index.

Existing Home Sales10:00 AM: Existing Home Sales for May from the National Association of Realtors (NAR). The consensus is for 5.57 million SAAR, up from 5.45 million in April.

Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in May.

10:00 AM ET: Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

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

----- Thursday, June 23rd -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, down from 277 thousand the previous week.

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

New Home Sales10:00 AM ET: New Home Sales for May from the Census Bureau.

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

The consensus is for a decrease in sales to 565 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 619 thousand in April.

----- Friday, June 24th -----

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.7% decrease in durable goods orders.

10:00 AM: University of Michigan's Consumer sentiment index (final for June). The consensus is for a reading of 94.1, down from the preliminary reading 94.0, and down from 94.7 in May.

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Friday 17 June 2016

Price Briefing 10-16 June 2016

Lithium market participants point to price exaggeration; doubts cast over China’s TiO2 price hikes; fluorspar prices steady at low levels; decline in graphite continues.

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Thursday 16 June 2016

Theranos Update: “Celebrity” Boards And Their Negative Impact On American Business

When I read the following excerpt of Michael Fertik’s post Elizabeth Holmes and the Burden of (Social) Proof, the name Conrad Black immediately came to mind:

“Holmes did what many entrepreneurs do, often with positive effect: brought together smart, known people to build the board and leadership team. She surrounded herself with an original board configuration guaranteed to lend gravitas and surface-level credibility to the company, including former Secretaries of State Henry Kissinger and George Schultz, and former CDC director William Foege.”

Why do we constantly buy into names and images as opposed to facts and doing our own homework?

Note the following excerpt re Black’s board, and who’s name was also listed as a director:

Indeed, the roster of independent directors reads like the politically plugged-in guest list at an American Enterprise Institute dinner—not the managerial crowd you’d find at a Business Roundtable function. There’s former Secretary of StateHenry Kissinger (a director since 1996), who would seem to have little insight into the business challenges facing a newspaper company—think newsprint prices, union contracts, the impact of the digital era on newspapers. (Strategic bombing of media competitors, after all, is typically not an option.) He evidently agreed: While the Board met four times in 2002, the proxy notes that “Mr. Kissinger did not attend 75% or more of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of the committees on which such director served.” In other words, in exchange for his $35,000 director’s fee,Kissinger attended at most one meeting—and possibly none.

Of course we all know what happened with Black’s Hollinger International empire. If you have forgotten or are perhaps too young to remember, you can read about Black and his fall from grace on Wikipedia;  http://ift.tt/1UMKvbI

Sadly, and like Larry King – who has done late night infomercials for everything from BreathGemz Breath Fresheners to Omega XL Fish Oil Pills – the latter within the context of a legitimate news interview – many are simply selling their names and associated creditability.

Wake-up people!

Celebrity boards do not bring any real expertise or creditability to a corporation and its products or services. At least we should not automatically assume that they do.

We have to become more scrutinizing as investors and consumers, otherwise scandals such as Hollinger and Theranos will continue to prove the old adage that if we don’t learn from history, we are doomed to repeat it!

Not Everyone In Procurement Agrees With Me . . .

Vivek Sood, who is an Investor, Managing Director – Global Supply Chain Group, Keynote Speaker – “Mr Supply Chain” and Awarded Author, did not necessarily agree with my above assessment.

In a comment Mr. Sood shared on my original LinkedIn post, he said the following: “Why blame the board for management failures?”

Vivek Sood Comment

My response?

“It is, and I quote one of a myriad of sources, “the role of the board of directors to hire the CEO or general manager of the business and assess the overall direction and strategy of the business.”

Furthermore, and quoting yet again another source, “the board is directly responsible for protecting and managing shareholders’ interests in the company.” In short Vivek, being a member of a board – a real board – carries with it a great deal of responsibility beyond being a showcase of famous names.”

In making the above statement, I believe that boards are not there to serve the wishes of the CEO, but to hold them accountable.

While Theranos is an extreme example of a board’s failure to live up to its fiduciary responsibility, I fear that this scenario is far more common than we would like to think or believe.

What is your take?

What role do you believe a Board of Directors should play in overseeing the best interests of a company and its shareholders?

Check out my other posts on Theranos here: http://ift.tt/21pozEm




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Lawler: Early Read on Existing Home Sales in May

From housing economist Tom Lawler:

Based on publicly-available state and local realtor/MLS reports from across the country released through today, I project that May existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.55 million in May, up 1.8% from April’s preliminary pace and up 4.9% from last May’s seasonally adjusted pace. Unadjusted sales should show a slightly higher YOY % gain, reflecting this May’s higher business-day count.

Local realtor/MLS data also suggest that existing home listings increased only slightly on the month (and by less than last May’s MoM gain), and I project that the inventory of existing homes for sale as estimated by the NAR for the end of May will be 2.16 million, up 0.9% from April’s preliminary estimate and down 5.3% from last May. Finally, I project that the NAR’s estimate of the median existing single-family home sales price for May will be up 5.3% YOY.

CR Note: The NAR is scheduled to release May Existing Home sales next Wednesday, and the early consensus is 5.64 million SAAR (probably too high).

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Lawler: Single-Family Home Production in 2015: Small Number, Big Homes

From housing economist Tom Lawler: Single-Family Home Production in 2015: Small Number, Big Homes

At the beginning of June the Census Bureau released its annual report for 2015 on the characteristics of new privately-owned residential structures, including but not limited to square footage, number of bedrooms and bathrooms, type of wall material, and sales prices. In terms of single-family homes completed last year, one of the more striking aspects of the report was the incredibly small number of modestly-sized single-family homes completed last year. Below is a summary of homes completed from 1999 to 2015 by square-footage ranges.

Of the estimated 648,000 single-family homes completed last year, just 136,000, or 21%, were homes with square footage of less than 1,800. The number of “moderately-sized” single-family homes completed in 2015 was little changed 2011, when overall single-family home completions hit at a “record” low. In sharp contrast, the number of homes with 3,000 or more square feet of floor area last year was up 76% from 2011’s level.

Single-Family Homes Completed by Square Footage
  Number of houses (in thousands) by square feet
Year Total Under
1,400
1,400 to
1,799
1,800 to
2,399
2,400 to
2,999
3,000 to
3,999
4,000
or more
1999 1,270 197 276 370 211 157 59
2000 1,242 178 268 363 208 158 66
2001 1,256 167 261 359 222 172 75
2002 1,325 172 283 375 240 180 76
2003 1,386 179 279 401 251 199 77
2004 1,532 186 311 433 291 219 92
2005 1,636 165 317 467 306 262 119
2006 1,654 164 312 452 326 263 137
2007 1,218 120 220 335 227 202 115
2008 819 104 146 219 138 127 84
2009 520 66 106 139 89 72 48
2010 496 66 96 135 87 75 37
2011 447 57 84 111 79 76 40
2012 483 53 83 126 93 88 40
2013 569 46 89 154 115 110 56
2014 620 48 87 162 131 127 66
2015 648 49 87 171 138 132 72


Lawler Median House Size Click on graph for larger image.

Here is a chart showing the historical median square footage of single-family homes completed.

It is a little difficult to compare the distribution of single-family homes completed in recent years relative to earlier decades, because Census has changed the square-footage ranges in its reports over time. However, from 1999 to 2007 there are data for both the “old” ranges and the “new” ranges, and by looking at some historical relationships one can approximate completions for various ranges over time, which I have done in the table below.

Average Annual Single-Family Homes Completed by Square Feeet of Floor Area
  Total <1,600 1,600-
1,999
2000-
2,399
2,400-
2,999
3,000+
1973-79 1,140 574 259 158 94 55
1980-89 978 453 207 134 108 75
1990-99 1,070 319 242 189 170 151
2000-09 1,259 269 261 224 230 274
2010 496 111 101 85 87 112
2011 447 96 86 70 79 116
2012 483 92 91 79 93 128
2013 569 88 104 97 115 166
2014 620 89 106 102 131 193
2015 648 90 109 108 138 204
(LEHC estimates based on Census data. Totals may not add up due to rounding).


There have been numerous articles over the last year or two discussing some of the possible reasons for the dearth of construction of moderately-sized (and priced) single-family homes over the past few years, and I won’t today discuss the “why’s.” However, it seems highly unlikely that single-family starts (and completions) will move back up to more “historic” levels unless there is a rebound in the construction of “smaller,” and less expensive, homes.

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