by Calculated Risk on 10/19/2016 06:11:00 PM

Tonight (Wednesday) from 9:00 PM to 10:30 PM ET: the Third Presidential Debate, at University of Nevada, Las Vegas, Las Vegas, NV

From Politifact PolitiFact’s guide to the third presidential debate

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 250 thousand initial claims, up from 246 thousand the previous week.  Note: I expect a larger increase in claims than the consensus due to Hurricane Matthew - maybe closer to 300 thousand.

• Also at 8:30 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of 7.0, down from 12.8.

• At 10:00 AM, Existing Home Sales for September from the National Association of Realtors (NAR).  The consensus is for 5.35 million SAAR, up from 5.33 million in August. Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR.

by Calculated Risk on 10/19/2016 02:15:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Dallas based on information collected on or before October 7, 2016. "

Reports from the twelve Federal Reserve Districts suggest national economic activity continued to expand during the reporting period from late August to early October. Most Districts indicated a modest or moderate pace of expansion; however, the New York District reported no change in overall activity. Compared with the previous report, the pace of growth improved in the St. Louis, Kansas City, and Dallas Districts. Outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several Districts.

Labor market conditions remained tight, with modest employment and wage growth noted over the reporting period. Most Districts characterized input costs and/or output prices as fairly flat, but prices increased slightly on net.
emphasis added

And on real estate:

Residential real estate activity expanded in most Districts since the prior report, and contacts in a few Districts expressed optimism about future growth. Homes sales fell markedly in the Kansas City District, while slight to moderate gains were reported by most of the other Districts. Demand for lower-priced homes was solid in Districts that commented on it, while sales of higher-priced homes slowed in the New York, Chicago, and Dallas Districts, and in Alaska according to San Francisco's report. Home inventories were generally reported to be low or declining and were restraining sales growth according to the Boston, Philadelphia, and Minneapolis Districts. Home prices continued to rise at a modest pace across much of the country, which contacts in some Districts attributed to tight inventories and labor constraints. Growth in residential construction was generally flat to up during the reporting period, with particular strength noted in the San Francisco District. However, construction activity dipped slightly in the Richmond District partly due to lot shortages.

Reports on multifamily activity varied but were positive on net. Strength in the apartment market was noted by the Dallas District (excluding the Houston metro area), while activity was mixed in the New York District. Growth in multifamily construction was positive in the Boston and Atlanta Districts but was mixed in the Richmond District and slowed further according to New York's report.

Commercial real estate leasing activity generally improved, and outlooks were mostly optimistic, although contacts in a few Districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. Commercial rents were flat to up, and vacancy rates were generally low and/or declined in reporting Districts, except in the Houston metro area where office vacancies increased further. Sales of commercial properties were characterized as robust in the Chicago, Minneapolis, and San Francisco Districts but softened in the greater Boston area. Commercial construction increased on net, with contacts in the Cleveland and Atlanta Districts reporting increased or high backlogs. Shortages of skilled labor remained a constraint on construction activity in some Districts, such as Cleveland and San Francisco.

Real estate is decent.

by Calculated Risk on 10/19/2016 12:11:00 PM

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

From the AIA: Further Contraction in Architecture Billings Index

For the first time since the summer of 2012, the Architecture Billings Index (ABI) posted consecutive months of a decline in demand for design services. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the September ABI score was 48.4, down from the mark of 49.7 in the previous month. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.4, down from a reading of 61.8 the previous month.

“This recent backslide should act as a warning signal,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “But this drop-off in demand could be continued hesitancy in the marketplace to move forward on projects until the presidential election is decided. The fact that new work coming into architecture continues to slowly increase suggests that billings will resume their growth in the coming months”
...
• Regional averages: South (53.4), Midwest (50.1), West (49.5), Northeast (44.0)

• Sector index breakdown:commercial/industrial (50.4), mixed practice (49.8), institutional (49.0), multi-family residential (48.8)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in September, down from 49.7 in August. 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 index was positive in 8 of the last 12 months, suggesting a further increase in CRE investment through mid-2017.  However if this drop-off continues, CRE investment could slow in the 2nd half of 2017.

by Calculated Risk on 10/19/2016 09:55:00 AM

Earlier: Housing Starts decreased to 1.047 Million Annual Rate in September

The housing starts report this morning was unusual because of the sharp decline in multi-family starts. However multi-family permits were solid in September, so multi-family starts will probably rebound in October.

Meanwhile single family starts were up, and there were upward revisions to the prior two months.  No worries!

This first graph shows the month to month comparison between 2015 (blue) and 2016 (red).

Click on graph for larger image.

Year-to-date starts are up 3.7% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that still looks about right.

Multi-family starts are down 5.6% year-to-date, and single-family starts are up 8.6% year-to-date.

Below is an update to the 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 is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.

Both multi-family starts and completions declined in September, but both will probably bounce back in October.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 10/19/2016 08:38:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,047,000. This is 9.0 percent below the revised August estimate of 1,150,000 and is 11.9 percent (±11.9%) below the September 2015 rate of 1,189,000.

Single-family housing starts in September were at a rate of 783,000; this is 8.1 percent above the revised August figure of 724,000. The September rate for units in buildings with five units or more was 250,000.

Building Permits:
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,225,000. This is 6.3 percent above the revised August rate of 1,152,000 and is 8.5 percent above the September 2015 estimate of 1,129,000.

Single-family authorizations in September were at a rate of 739,000; this is 0.4 percent above the revised August figure of 736,000. Authorizations of units in buildings with five units or more were at a rate of 449,000 in September.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased significantly in September compared to August.  Multi-family starts are down sharply year-over-year.

Multi-family is volatile, and permits are up - so I expect multi-family starts to bounce back in October.

Single-family starts (blue) increased in September, and are up 5.4% year-over-year.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in September were below expectations - due to the decline in multi-family starts - however combined starts for July and August were revised up.  I'll have more later ...

by Calculated Risk on 10/19/2016 07:00:00 AM

From the MBA: Mortgage Applications Slightly Increase in Latest MBA Weekly Survey

Mortgage applications increased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 14, 2016. This week’s results included an adjustment for the Columbus Day holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 13 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) increased to its highest level since June 2016, 3.73 percent, from 3.68 percent, with points increasing to 0.36 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity has increased this year since rates have declined.  Since rates are up a little recently, refinance activity has declined a little.


The second graph shows the MBA mortgage purchase index.

The purchase index was "13 percent higher than the same week one year ago".

by Calculated Risk on 10/18/2016 09:04:00 PM

From Tim Duy: Are Yellen and Fischer Really Worlds Apart?

Bottom Line: The key debate within the Fed at the moment centers around the need for preemptive rate hikes. The hawks prefer more preemption, the doves favor less. Federal Reserve Lael Brainard pulled the FOMC to the dovish camp, primarily through her influence at Constitution Ave. Yellen is probably somewhat more sympathetic to Brainard than Fischer, but as I said last week, Fischer has moved substantially in Brainard's direction. It is really the presidents that are on the hawkish side of the aisle. There just isn't that much space between Yellen and Fischer at the moment.

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, Housing Starts for September. Total housing starts decreased to 1.142 million (SAAR) in August. Single family starts decreased to 722 thousand SAAR in August. The consensus for 1.180 million, up from the August rate.

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

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

• At 9:00 PM ET, the Third Presidential Debate, at University of Nevada, Las Vegas, Las Vegas, NV

by Calculated Risk on 10/18/2016 03:04:00 PM

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

FNC released their August 2016 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.5% from July to August (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 0.6% (NSA), the 20-MSA RPI increased 0.5%, and the 30-MSA RPI also increased 0.5% in August. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

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 9.6% 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 August 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 August Case-Shiller index will be released on Tuesday, October 27th.

by Calculated Risk on 10/18/2016 11:13:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in September. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.1% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.6% annualized rate) in September. The CPI less food and energy rose 0.1% (1.4% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for September here. Motor fuel was up 94% annualized in September!

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.5%, the trimmed-mean CPI rose 2.1%, and the CPI less food and energy also rose 2.2%. Core PCE is for August and increased 1.6% year-over-year.

On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 2.1% annualized, and core CPI was at 1.4% annualized.

Using these measures, inflation has generally been moving up, and most of these measures are at or above the Fed's target (Core PCE is still below).

by Calculated Risk on 10/18/2016 10:06:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 63 in October, down from 65 in September. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Remains Solid in Octobe

Builder confidence in the market for newly constructed single-family homes remained on firm ground in October, down two points to a level of 63 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
...
“The October reading represents a mild pullback from a jump in September, and indicates that the housing market continues to make slow and steady gains,” said NAHB Chief Economist Robert Dietz. “Moreover, mortgage rates remain low and the HMI index measuring future sales expectations has been over 70 for the past two months. These factors will sustain continued growth in the single-family market in the months ahead.”
...
Two of the three HMI components posted losses in October. The component gauging current sales conditions dropped two points to 69 and the index charting buyer traffic fell one point to 46. Meanwhile, the index measuring sales expectations in the next six months rose one point to 72.

Looking at the three-month moving averages for regional HMI scores, the West increased two points to 75 while the Northeast, Midwest and South each posted one-point gains to 43, 56 and 65, respectively.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was at the consensus forecast of 63, and is another solid reading.