by CalculatedRisk on 5/16/2012 09:55:00 PM

On Thursday:

• The initial weekly unemployment claims report will be released at 8:30 AM. The consensus is for claims to be essentially unchanged at 365 thousand compared to 367 thousand last week. Based on the consensus (and the usual upward revision to the previous week), the 4-week average will probably decline to below 375 thousand.

• At 10:00 AM, the Philly Fed Survey for May is scheduled for release. The consensus is for a reading of 10.0, up from 8.5 last month (above zero indicates expansion). This is the 2nd regional Fed survey for May; the NY Fed (Empire state) survey indicated faster expansion in May.

• Also at 10:00 AM, the Conference Board Leading Indicators for April will be released. The consensus is for a 0.1% increase in this index.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by CalculatedRisk on 5/16/2012 07:37:00 PM

Just over two years ago we started discussing how the environment was becoming more favorable for apartment owners. This was based on several factors:

• Favorable demographics: a large cohort was moving into the low 20s to mid-30s age group. (see graph of age groups at "Rents soar")
• There were a record low number of multi-family housing units being started, meaning very few completions in 2010 and 2011.
• A large number of families were losing their homes in foreclosure, or through a short sales, and many of these families were becoming renters. (limited new supply)
• The price-to-rent ratio favored renting.

Sure enough, the vacancy rate for apartments declined sharply over the last two years, and rents have been rising.

Looking forward, the environment will be a little less favorable for apartments owners in a year or two. Demographics will still be favorable for several more years, but it appears completions might start catching up to absorption in a year or two (based on some comments and projections today from Reis director of research Victor Canalog on a webinar).

Below is an update to a 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 are also important for employment).

This 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 since mid-2010. The 12 month total for completions (red line) is now following starts up. This suggests that completions (new supply) will increase sharply in 2013 and 2014, although this will still be below the level for the pre-bust period.

Other factors that might make the environment less favorable for apartment owners are:
• More investor buying of single family homes as rentals.
• Fewer foreclosures in 2013 and beyond.
• Wages not keeping up with rent increases.
• House prices are now back to "normal" levels in many areas based on rents. Further rent increases will start pushing more renters to buy (those that can qualify).

These are just some preliminary thoughts - right now conditions remain very favorable for apartment owners as indicated by the recent NMHC apartment survey and Reis quarterly survey.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by CalculatedRisk on 5/16/2012 05:37:00 PM

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

From AIA: Architecture Billings Index Reverts to Negative Territory

After five months of positive readings, the Architecture Billings Index (ABI) has fallen into negative terrain. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 48.4, following a mark of 50.4 in March. This score reflects a decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.4, down from mark of 56.6 the previous month.

“Considering the continued volatility in the overall economy, this decline in demand for design services isn’t terribly surprising,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Also, favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in April. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This is just one month - and as Baker noted, this might be payback for the mild weather earlier in the year - but this suggests CRE investment will stay weak all year (it will be some time before investment in offices and malls increases).


All current Commercial Real Estate graphs

by CalculatedRisk on 5/16/2012 04:27:00 PM

From Realtor.com: April 2012 Real Estate Data

On the national level, inventory of for-sale single family homes, condominiums, townhouses and co-ops declined by -18.85% in April 2012 compared to a year ago, and declined in all but five of the 146 markets covered by Realtor.com.

Realtor.com also reports that inventory was up 2.0% from the March level.

Inventory usually increases seasonally from March to April. Over the last 11 years, the average increase was close to 9% since many people typically list their homes in the spring, hoping to move during the summer months. If the NAR also reports a 2% increase, this would be the smallest increase in inventory from March to April since the year 2000.

The NAR is scheduled to report April existing home sales and inventory on Tuesday, May 22nd. Economist Tom Lawler told me he expects to have a preliminary estimate of April existing home sales tomorrow.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by CalculatedRisk on 5/16/2012 02:00:00 PM

The Fed's program to "extend the average maturity of its holdings of securities" (aka Operation Twist) is schedule to end in June. Now analysts are looking for clues about the possibility of QE3.

Although there was no discussion of easing alternatives, several members indicated they'd support additional monetary policy accommodation if the economy slows. This was an increase from a "couple" members in the previous meeting.

From the Fed: Minutes of the Federal Open Market Committee, April 24-25, 2012 . Excerpt:

Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments