Wednesday, November 25, 2015

2016: Updated Housing Forecasts

by Bill McBride on 11/25/2015 07:20:00 PM

Towards the end of each year I collect some housing forecasts for the following year, and it looks like analysts are optimistic for 2016 (many more forecasts will be added).

First a review of the previous three years ...

Here is a summary of forecasts for 2015. In 2015, new home sales will probably be just over 500 thousand, and total housing starts will be something over 1.1 million.  It is early, but CoreLogic, Zillow and the MBA were very close on New Home sales, and CoreLogic, MetroStudy, MBA and Zillow were all close on starts.

Here is a summary of forecasts for 2014. In 2014, new home sales were 437 thousand, and total housing starts were 1.003 million. No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high). In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.

Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays was the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.

The table below shows a few forecasts for 2016 (I'll add many more of the next several weeks).

From Fannie Mae: Housing Forecast: October 2015

From NAHB: Housing Recovery to Pick Up Steam in 2016, but Challenges Remain

UCLA Ziman Center.

Note: For comparison, new home sales in 2015 will probably be just over 500 thousand, and total housing starts over 1.1 million.

I haven't worked up a forecast yet for 2016, however I think the UCLA forecast for housing starts is too high.

Housing Forecasts for 2016
New Home Sales (000s)Single Family Starts (000s)Total Starts (000s)House Prices1
Fannie Mae5628271,2244.9%2
Merrill Lynch555
UCLA Ziman Center
1Case-Shiller unless indicated otherwise
2FHFA Purchase-Only Index

Philly Fed: State Coincident Indexes increased in 43 states in October

by Bill McBride on 11/25/2015 03:31:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2015. In the past month, the indexes increased in 43 states, decreased in six, and remained stable in one, for a one-month diffusion index of 74. 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 October, 44 states had increasing activity (including minor increases).

The worst performing states over the last 6 months are Wisconsin and North Dakota (oil).

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.

Comments on October New Home Sales

by Bill McBride on 11/25/2015 01:11:00 PM

The new home sales report for October was slightly below expectations, however sales for July, August and September were revised down. Sales were up 4.9% year-over-year in October (SA).

Earlier: New Home Sales increased to 495,000 Annual Rate in October.

Even though the October report was somewhat disappointing, sales are still up solidly year-to-date.  The Census Bureau reported that new home sales this year, through October, were 430,000, not seasonally adjusted (NSA). That is up 15.7% from 371,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for 2015 through October.

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate).

The year-over-year gain was small in October, and I expect the year-over-year increases to be lower over the last two months of 2015 compared to earlier this year - but the overall year-over-year gain should be solid in 2015.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through October 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to move sideways (distressed sales will continue to decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

New Home Sales increased to 495,000 Annual Rate in October

by Bill McBride on 11/25/2015 10:12:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 495 thousand.

The previous three months were revised down by a total of 40 thousand (SAAR).

"SSales of new single-family houses in October 2015 were at a seasonally adjusted annual rate of 495,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.7 percent (±17.7%)* above the revised September rate of 447,000 and is 4.9 percent (±17.6%)* above the October 2014 estimate of 472,000."
New Home SalesClick on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales since the bottom, new home sales are still fairly low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply decreased in October to 5.5 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).
" The seasonally adjusted estimate of new houses for sale at the end of October was 226,000. This represents a supply of 5.5 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In October 2015 (red column), 41 thousand new homes were sold (NSA). Last year 38 thousand homes were sold in October.

The all time high for October was 105 thousand in 2005, and the all time low for October was 23 thousand in 2011.

This was close to expectations of 499,000 sales SAAR in October, however prior months were revised down - a somewhat disappointing report.  I'll have more later today.

Personal Income increased 0.4% in October, Spending increased 0.1%

by Bill McBride on 11/25/2015 08:50:00 AM

The BEA released the Personal Income and Outlays report for October:

Personal income increased $68.1 billion, or 0.4 percent ... in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $15.2 billion, or 0.1 percent.
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in October, the same increase as in September. ... The price index for PCE increased 0.1 percent in October, in contrast to a decrease of 0.1 percent in September. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared to an increase of 0.2 percent.

The October price index for PCE increased 0.2 percent from October a year ago. The October PCE price index, excluding food and energy, increased 1.3 percent from October a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through October 2015 (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 at consensus expectations.  And the increase in PCE was below the consensus.

On inflation: The PCE price index increased 0.2 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.3 percent year-over-year in October.

Weekly Initial Unemployment Claims declined to 260,000

by Bill McBride on 11/25/2015 08:38:00 AM

The DOL reported:

In the week ending November 21, the advance figure for seasonally adjusted initial claims was 260,000, a decrease of 12,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 271,000 to 272,000. The 4-week moving average was 271,000, unchanged from the previous week's revised average. The previous week's average was revised up by 250 from 270,750 to 271,000.

There were no special factors impacting this week's initial claims.
The previous week was revised up to 272,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 was unchanged at 271,000.

This was below the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey, Purchase Applications up 24% YoY

by Bill McBride on 11/25/2015 07:01:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Surve

Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 20, 2015. The previous week’s results included an adjustment for the Veteran’s Day holiday.
The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 24 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.14 percent from 4.18 percent, with points increasing to 0.49 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.

The first graph shows the refinance index.

Refinance activity remains low.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 24% higher than a year ago.

Tuesday, November 24, 2015

Wednesday: New Home Sales, Unemployment Claims, Personal Income and Outlays, Durable Goods, and more

by Bill McBride on 11/24/2015 07:45:00 PM

From the WSJ: Real Home Prices Could Take 17 Years to Return to Peak

Most measures of home prices—including the S&P/Case-Shiller Home Price Index, the CoreLogic Home Price Index and the National Association of Realtors existing home sales report—don’t take inflation into account and show prices nearing or surpassing the peak hit in 2006 or early 2007.

But a new analysis by real-estate information firm CoreLogic finds that when adjusted for inflation, home prices are years away from hitting the lofty heights of the housing boom. Indeed, economists there say that prices are unlikely to surpass 2006 levels until 2023 or beyond, some 17 years past the peak.
As the article notes, the nominal Corelogic index is 7% below the peak, but 20% below the peak when adjusted for inflation. As I noted this morning, the nominal Case-Shiller index 6% below the bubble, but 19.7% below the peak when adjusted for inflation.

This is important. As I wrote in early 2005, "a bubble requires both overvaluation based on fundamentals and speculation", and currently we are seeing little speculation and valuations aren't anything like during the bubble. So no bubble.

The WSJ article quotes Corelogic chief economist Sam Khater:
“The market is overvalued but it’s not a bubble,” Mr. Khater said. “Unlike the last boom, which was heavily demand-driven, this boom [in] home prices is driven by the chronic lack of supply.”
• 7:00 AM ET: the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, down from 271 thousand the previous week.

• Also at 8:30 AM,  Durable Goods Orders for October from the Census Bureau. The consensus is for a 1.5% decrease in durable goods orders.

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

• At 9:00 AM, the FHFA House Price Index for September 2015. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% month-to-month increase for this index.

• At 10:00 AM, New Home Sales for October from the Census Bureau. The consensus is for a increase in sales to 499 thousand Seasonally Adjusted Annual Rate (SAAR) in October from 468 thousand in September.

• Also at 10:00 AM, the University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 93.1, unchanged from the preliminary reading.

Chemical Activity Barometer "Chemical Activity Barometer Stabilizes"

by Bill McBride on 11/24/2015 03:27:00 PM

Here is an indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Stabilizes as Year End Approaches

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), stabilized in November, rising 0.1 percent following three consecutive months of decline. October data was revised up 0.3 percent and September by 0.2 percent. All data is measured on a three-month moving average (3MMA).The pattern reverses a downward trend that had begun to gain momentum. Accounting for adjustments, the CAB remains up 1.3 percent over this time last year, a deceleration of annual growth. In November 2014, the CAB logged a 3.4 percent annual gain over October 2013. ...
Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

This suggests that industrial production might have stabilized.

Real Prices and Price-to-Rent Ratio in September

by Bill McBride on 11/24/2015 12:04:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 4.9% year-over-year in September

The year-over-year increase in prices is mostly moving sideways now at between 4% and 5%.   In October 2013, the National index was up 10.9% year-over-year (YoY). In September 2015, the index was up 4.9% YoY.

Here is the YoY change since January 2014 for the National Index:

MonthYoY Change

This slowdown in price increases this year was expected by several key analysts, and I think it is good news for housing and the economy.

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 6.0% below the bubble peak.   However, in real terms, the National index is still about 19.7% 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 September) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to August 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to February 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 September 2003 levels, the Composite 20 index is back to May 2003, and the CoreLogic index back to January 2004.

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

Note: CPI less Shelter is down 1.5% year-over-year, so this is pushing up real prices.


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 May 2003 levels, the Composite 20 index is back to December 2002 levels, and the CoreLogic index is back to October 2003.

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