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Wednesday, June 21, 2017

A Few Comments on May Existing Home Sales

by Calculated Risk on 6/21/2017 12:42:00 PM

Earlier: NAR: "Existing-Home Sales Rise 1.1 Percent in May"

Two key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  The NAR reported sales of  5.62 million SAAR, Lawler projected 5.65 million SAAR, and the consensus was 5.55 million SAAR.  See: Lawler: Early Read on Existing Home Sales in May

"I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.65 million in May, up 1.4% from April’s preliminary pace and up 3.3% from last May’s seasonally adjusted pace."
2) Inventory is still very low and falling year-over-year (down 8.4% year-over-year in May).

I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely, but still possible.

More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

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 above May2016. (NSA) - and the highest for May since 2006.

Note that sales NSA are now in the seasonally strong period (March through September).

NAR: "Existing-Home Sales Rise 1.1 Percent in May"

by Calculated Risk on 6/21/2017 10:11:00 AM

From the NAR: Existing-Home Sales Rise 1.1 Percent in May; Median Sales Price Ascends to New High

Existing-home sales rebounded in May following a notable decline in April, and low inventory levels helped propel the median sales price to a new high while pushing down the median days a home is on the market to a new low, according to the National Association of Realtors®. All major regions except for the Midwest saw an increase in sales last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 1.1 percent to a seasonally adjusted annual rate of 5.62 million in May from a downwardly revised 5.56 million in April. Last month's sales pace is 2.7 percent above a year ago and is the third highest over the past year.  
...
Total housing inventory at the end of May rose 2.1 percent to 1.96 million existing homes available for sale, but is still 8.4 percent lower than a year ago (2.14 million) and has fallen year-over-year for 24 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.7 months a year ago.
emphasis added
Existing Home SalesClick on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May (5.63 million SAAR) were 1.1% higher than last month, and were 2.7% above the May 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.96 million in May from 1.92 million in April.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory decreased 8.4% year-over-year in May compared to May 2016.  

Months of supply was at 4.2 months in May.

This was above the consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

AIA: Architecture Billings Index positive in May

by Calculated Risk on 6/21/2017 09:15:00 AM

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

From the AIA: Design billings maintain solid footing, with strong momentum reflected in both project inquiries and design contracts

Design services at architecture firms continue to project a healthy disposition on the construction industry as the Architecture Billings Index (ABI) recorded the fourth consecutive month of growth. 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 May ABI score was 53.0, up from a score of 50.9 in the previous month. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.4, up from a reading of 60.2 the previous month, while the new design contracts index increased from 53.2 to 54.8.

“The fact that the data surrounding both new project inquiries and design contracts have remained positive every month this year, while reaching their highest scores for the year, is a good indication that both the architecture and construction sectors will remain healthy for the foreseeable future,” AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “This growth hasn’t been an overnight escalation, but rather a steady, stable increase.”
...
• Regional averages: South (56.1), West (52.3), Midwest (50.4), Northeast (46.5)

• Sector index breakdown: mixed practice (55.8), multi-family residential (51.3), commercial / industrial (51.2), institutional (51.2)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.0 in May, up from 50.9 the previous month. Anything above 50 indicates expansion 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 9 of the last 12 months, suggesting a further increase in CRE investment in 2017 and early 2018.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Calculated Risk on 6/21/2017 07:00:00 AM

From the MBA: Mortgage Applications 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 June 16, 2017.

... The Refinance Index increased 2 percent from the previous week to its highest level since November 2016. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 9 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.13 percent from 4.14 percent, with points increasing to 0.35 from 0.34 (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 increased recently as rates declined, but will not increase significantly unless rates fall well below 4%.


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

According to the MBA, purchase activity is up 9% year-over-year.

Tuesday, June 20, 2017

Wednesday: Existing Home Sales

by Calculated Risk on 6/20/2017 08:20:00 PM

From Matthew Graham at Mortgage News Daily: Rates Fall Slightly to Remain Near 8-Month Lows

Mortgage rates were steady to slightly lower today, with underlying bond markets essentially erasing the damage seen yesterday.  This was neither here nor there for the mortgage world as most lenders didn't adjust rates much higher yesterday (despite bond weakness).  Thus, they didn't have much to do today when bonds strengthened.  In general "bond market strength" = lower rates and vice versa.
...
The absence of change continues to be a good thing given that rates remain very close to their lowest levels in more than 8 months.  Only a handful of recent days have been any better.  4.0% is the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios, though a few of the aggressive lenders remain at 3.875%.
Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Existing Home Sales for May from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.57 million in April. Housing economist Tom Lawler expects the NAR to report sales of 5.65 million SAAR in May.

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

Phoenix Real Estate in May: Sales up 9%, Inventory down 9% YoY

by Calculated Risk on 6/20/2017 05:29:00 PM

This is a key housing market to follow since Phoenix saw a large bubble and bust, followed by strong investor buying.

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

1) Overall sales in May were up 9.3% year-over-year.

2) Active inventory is now down 9.5% year-over-year. 

More inventory (a theme in most of 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.

With flat inventory in 2016, prices were up 4.8%.

This is the seventh consecutive month with a YoY decrease in inventory, and prices are up 1.7% through March (7.1% annual rate).

May Residential Sales and Inventory, Greater Phoenix Area, ARMLS
SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
InventoryYoY
Change
Inventory
May-085,6371---1,06218.8%54,1611---
May-099,28464.7%3,59238.7%39,902-26.3%
May-109,067-2.3%3,34136.8%41,3263.6%
May-119,8118.2%4,52346.1%31,661-23.4%
May-128,44513.5%3,90746.3%20,162-36.3%
May-139,44011.8%3,66938.9%19,734-2.1%
May-147,442-21.2%2,19329.5%29,09147.4%
May-158,29311.4%1,98824.0%24,616-15.4%
May-168,8206.4%1,93121.9%25,9805.5%
May-179,6419.3%NANA23,520-9.5%
1 May 2008 does not include manufactured homes, ~100 more

Chemical Activity Barometer "flat" in June

by Calculated Risk on 6/20/2017 11:52:00 AM

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

From the American Chemistry Council: Chemical Activity Barometer Remains Steady

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), was flat in June following a 0.2 percent gain in May, and a 0.3 percent gain in April. This marks a slowing from the average 0.5 percent first quarter monthly gain.  Compared to a year earlier, the CAB is up 4.3 percent year-over-year, a modest yet continued slowing. All data is measured on a three-month moving average (3MMA).
...
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).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production, however, the year-over-year increase in the CAB has slowed recently.

Oil Prices Lower, Down Year-over-year

by Calculated Risk on 6/20/2017 09:57:00 AM

From CNBC: Oil prices are tumbling more than 2% to $43 a barrel right now

U.S. West Texas Intermediate crude oil futures were last down $1.19, or 2.7 percent, at $43.01.
Oil PricesClick on graph for larger image

The first graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $42.87 per barrel today, and Brent is at $45.69.

Prices really collapsed at the end of 2014 - and then rebounded a little - and then collapsed again at the end of 2015 and in early 2016.

Prices then rebounded to over $50 per barrel, but have been falling recently.

Oil Prices The second graph shows the year-over-year change in WTI based on data from the EIA.

Six times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.

Currently WTI is down about 12% year-over-year.

Monday, June 19, 2017

Lawler: Single-Family Housing Production ‘Shortfall” All In Modestly Sized, Modestly Price Segment

by Calculated Risk on 6/19/2017 07:59:00 PM

A short note from housing economist Tom Lawler: Single-Family Housing Production ‘Shortfall” All In Modestly Sized, Modestly Price Segment

The number of US single-family homes completed last year that had at least 3,000 square feet of floor area (222,000). was higher than any year in the 20th Century save for the year 2000, when 224,000 of such really large homes were completed.

U.S. housing by Square Footagee
LEHC Estimates Based on Latest and Historical Census “Annual Characteristics of Housing”

Lawler: Early Read on Existing Home Sales in May

by Calculated Risk on 6/19/2017 01:58:00 PM

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.65 million in May, up 1.4% from April’s preliminary pace and up 3.3% from last May’s seasonally adjusted pace. Unadjusted sales last month should show a larger YOY gain than seasonally adjusted sales. Local realtor/MLS data also suggest that existing home sales this May show a larger monthly increase than last May, and I project that the NAR’s estimate of the inventory of existing homes for sale in May will be 1.98 million, up 2.6% from April’s estimate and down 7.5% from last May. Finally, local realtor/MLS data suggest that the NAR’s estimate of the median existing single-family home sales price in May will be up by about 6.5% from last May.

CR Note: The NAR is scheduled to release existing home sales for May on Wednesday, June 21st. The consensus forecast is for sales of 5.55 million SAAR (take the over).