Wednesday, April 25, 2018

Thursday: Unemployment Claims, Durable Goods, Housing Vacancies and Homeownership

by Bill McBride on 4/25/2018 08:17:00 PM

• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, down from 232 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for March from the Census Bureau. The consensus is for a 1.7% increase in durable goods orders.

• At 10:00 AM, the Q1 2018 Housing Vacancies and Homeownership from the Census Bureau.

• At 11:00 AM, the Kansas City Fed manufacturing survey for March.

NMHC: Apartment Market Tightness Index remained negative for Tenth Consecutive Quarter

by Bill McBride on 4/25/2018 02:29:00 PM

From the National Multifamily Housing Council (NMHC): April NMHC Quarterly Survey Shows Greater Supply Improving Affordability

Apartment market conditions were uneven, according to results from the April National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The Market Tightness (38), Sales Volume (43) and Debt Financing (36) Indexes landed below the breakeven level of 50, while the Equity Financing Index decreased to 54.

“Apartment markets continue to send mixed signals,” said NMHC Chief Economist Mark Obrinsky. “While respondents indicated more markets are loosening than tightening, this was focused in markets that have experienced greater supply. So, the message is clear, if unsurprising: Increasing supply improves affordability.”

The Market Tightness Index increased two points to 38. This was the tenth consecutive quarter of overall declining conditions. Thirty-eight percent of respondents reported looser market conditions than three months prior, compared to only 14 percent who reported tighter conditions. Meanwhile, nearly half of respondents (47 percent) felt that conditions were no different from last quarter.
emphasis added
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

This is the tenth consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.

Update: A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 4/25/2018 01:40:00 PM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through February 2018).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

Philly Fed: State Coincident Indexes increased in 47 states in March

by Bill McBride on 4/25/2018 11:29:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2018. Over the past three months, the indexes increased in 49 states and decreased in one, for a three-month diffusion index of 96. In the past month, the indexes increased in 47 states, decreased in one, and remained stable in two, for a one-month diffusion index of 92.
emphasis added
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 by production workers, 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 State Conincident MapClick on map for larger image.

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 all or mostly green during most of the recent expansion.

Once again, the map is mostly green on a three month basis.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

Philly Fed Number of States with Increasing ActivityAnd here 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 March, 48 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.

Chemical Activity Barometer "Eases" in April

by Bill McBride on 4/25/2018 09:50:00 AM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Eases Following Six Consecutive Monthly Gains; Trends Suggest Growth into Early 2019

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), slipped 0.1 percent in April to 121.6 percent on a three-month moving average (3MMA) basis. This follows six consecutive monthly gains and a dip from the barometer’s highest point since modeling began. The barometer remains up 3.8 percent on a 3MMA compared to a year earlier.
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen 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).

The year-over-year increase in the CAB has been solid over the last year, suggesting further gains in industrial production in 2018.

MBA: Mortgage Applications Decrease Slightly in Latest Weekly Survey

by Bill McBride on 4/25/2018 07:00:00 AM

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

Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 20, 2018.

... The Refinance Index decreased 0.3 percent from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 11 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since September 2013, 4.73 percent, from 4.66 percent, with points increasing to 0.49 from 0.46 (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 since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.

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

According to the MBA, purchase activity is up 11% year-over-year.

Tuesday, April 24, 2018

"Mortgage Rates Push Farther Into 4-Year Highs"

by Bill McBride on 4/24/2018 09:26:00 PM

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

From Matthew Graham at Mortgage News Daily: Mortgage Rates Push Farther Into 4-Year Highs

Mortgage rates moved somewhat higher again today, thus pushing them farther into the highest levels in more than 4 years. [30YR FIXED - 4.625%-4.75%]
emphasis added
Here is a table from Mortgage News Daily:

U.S. Demographics: Largest 5-year cohorts, and Ten most Common Ages in 2017

by Bill McBride on 4/24/2018 05:17:00 PM

IMPORTANT NOTE: The data below is based on the Census 2017 estimates. Housing economist Tom Lawler has pointed out some questions about the Census estimates, see: Lawler: "New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High"

Four years ago, I wrote: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group.

In 2016, I followed up with Largest 5-year Population Cohorts are now "20 to 24" and "25 to 29" and U.S. Demographics: Ten most common ages in 2010, 2015, 2020, and 2030.

Note: For the impact on housing, also see: Demographics: Renting vs. Owning

Last week the Census Bureau released the population estimates for 2017, and I've updated the table from the previous post (replacing 2015 with 2017 data).

The table below shows the top 11 cohorts by size for 2010, 2017 (released this month), and Census Bureau projections for 2020 and 2030.

By the year 2020, 8 of the top 10 cohorts will be  under 40 (the Boomers will be fading away), and by 2030 the top 11 cohorts will be the youngest 11 cohorts (the reason I included 11 cohorts).

There will be plenty of "gray hairs" walking around in 2020 and 2030, but the key for the economy is the population in the prime working age group is now increasing.

This is positive for housing and the economy.

Population: Largest 5-Year Cohorts by Year
145 to 49 years25 to 29 years25 to 29 years35 to 39 years
250 to 54 years20 to 24 years30 to 34 years40 to 44 years
315 to 19 years55 to 59 years35 to 39 years30 to 34 years
420 to 24 years30 to 34 yearsUnder 5 years25 to 29 years
525 to 29 years50 to 54 years55 to 59 years5 to 9 years
640 to 44 years35 to 39 years20 to 24 years10 to 14 years
710 to 14 years15 to 19 years5 to 9 yearsUnder 5 years
85 to 9 years45 to 49 years60 to 64 years15 to 19 years
9Under 5 years10 to 14 years15 to 19 years20 to 24 years
1035 to 39 years5 to 9 years10 to 14 years45 to 49 years
1130 to 34 years60 to 64 years50 to 54 years50 to 54 years

2016 Population by Age
Click on graph for larger image.

This graph, based on the 2017 population estimate, shows the U.S. population by age in July 2017 according to the Census Bureau.

Note that the largest age groups are all in their mid-20s.

And below is a table showing the ten most common ages in 2010, 2017, 2020, and 2030 (projections are from the Census Bureau).

Note the younger baby boom generation dominated in 2010.  By 2017 the millennials have taken over.  And by 2020, the boomers are off the list.

My view is this is positive for both housing and the economy, especially in the 2020s.

Population: Most Common Ages by Year

Real House Prices and Price-to-Rent Ratio in February

by Bill McBride on 4/24/2018 02:20:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.3% year-over-year in February

It has been eleven years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 8.2% above the previous bubble peak. However, in real terms, the National index (SA) is still about 10.8% below the bubble peak (and historically there has been an upward slope to real house prices).

The year-over-year increase in prices is mostly moving sideways now around 6%. In February, the index was up 6.3% YoY.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller 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 $284,000 today adjusted for inflation (42%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).

Real House Prices

Real House PricesThe second graph shows the same two 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 November 2004 levels, and the Composite 20 index is back to May 2004.

In real terms, house prices are back to 2004 levels.


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 and Composite 20 House Price Indexes.

This graph shows the price to rent ratio (January 2000 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2004 levels, and the Composite 20 index is back to November 2003 levels.

In real terms, prices are back to mid 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004 - and the price-to-rent ratio has been increasing slowly.

A few Comments on March New Home Sales

by Bill McBride on 4/24/2018 11:44:00 AM

New home sales for March were reported at 694,000 on a seasonally adjusted annual rate basis (SAAR). This was well above the consensus forecast, and the three previous months were revised up, combined.

Earlier: New Home Sales increase to 694,000 Annual Rate in March.

New Home Sales 2016 2017Click on graph for larger image.

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales are up 10.3% through March compared to the same period in 2017. Solid growth, and the next five months will be an easy comparison to 2017.

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 several years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through March 2018. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, 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. If not, then the gap will persist.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

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.