by Bill McBride on 3/20/2019 09:20:00 PM

Thursday:
• At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 225 thousand initial claims, down from 229 thousand the previous week.

• At 8:30 AM, the Philly Fed manufacturing survey for March. The consensus is for a reading of 4.4, up from -4.1.

by Bill McBride on 3/20/2019 06:12:00 PM

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

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales declined to 6,409 from 6,911 in February 2018. Sales were UP 19.6% from January 2019, but down 7.3% from February 2018.

2) Active inventory was at 18,731, up from 16,961 in February 2018. This is up 10.4% year-over-year.  This is the fourth consecutive month with a YoY increase in active inventory.

The last four months - with a YoY increase - followed twenty-four consecutive months with a YoY decrease in inventory in Phoenix.

Months of supply decreased from 4.28 in January to 3.63 in February. This is still somewhat low.

by Bill McBride on 3/20/2019 02:09:00 PM

Statement here.

Fed Chair Powell press conference video here starting at 2:30 PM ET.

On the projections, growth was revised down, the unemployment rate revised up slightly, and inflation was softer.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2019	2020	2021
Mar 2019	1.9 to 2.2	1.8 to 2.0	1.7 to 2.0
Dec 2018	2.3 to 2.5	1.8 to 2.0	1.5 to 2.0
Sep 2018	2.4 to 2.7	1.8 to 2.1	NA

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.8% in February. The unemployment rate projection for 2019 was revised up slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2019	2020	2021
Mar 2019	3.6 to 3.8	3.6 to 3.9	3.7 to 4.1
Dec 2018	3.5 to 3.7	3.5 to 3.8	3.6 to 3.9
Sep 2018	3.4 to 3.6	3.4 to 3.8	NA

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of December 2018, PCE inflation was up 1.7% from December 2017. PCE inflation projections were revised down for 2019.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2019	2020	2021
Mar 2019	1.8 to 1.9	2.0 to 2.1	2.0 to 2.1
Dec 2018	1.8 to 2.1	2.0 to 2.1	2.0 to 2.1
Sep 2018	2.0 to 2.1	2.1 to 2.2	NA

PCE core inflation was up 1.9% in December year-over-year. Core PCE inflation was revised down slightly for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2019	2020	2021
Mar 2019	1.9 to 2.0	2.0 to 2.1	2.0 to 2.1
Dec 2018	2.0 to 2.1	2.0 to 2.1	2.0 to 2.1
Sep 2018	2.0 to 2.1	2.1 to 2.2	NA

by Bill McBride on 3/20/2019 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
emphasis added

by Bill McBride on 3/20/2019 10:17:00 AM

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

From the AIA: Billings Moderate in February Following Robust New Year

rchitecture firm billings growth softened in February but remained positive, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for February was 50.3, down from 55.3 in January. Indicators of work in the pipeline, including inquiries into new projects and the value of new design contracts remained positive.

“Overall business conditions at architecture firms across the country have remained generally healthy,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Firms in the south recorded continued strong design activity, likely reflecting a healthy regional economy and ongoing rebuilding from the catastrophic 2018 hurricane season.”
...
• Regional averages: South (58.3), West (51.6), Northeast (51.5), Midwest (51.3)

• Sector index breakdown: mixed practice (57.2), commercial/industrial (53.9), multi-family residential (51.6), institutional (50.9)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.3 in February, down from 55.3 in January. 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 has been positive for 17 consecutive months, suggesting a further increase in CRE investment in 2019.

by Bill McBride on 3/20/2019 07:00:00 AM

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

Mortgage applications increased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 15, 2019.

... The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 0.3 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 1 percent higher than the same week one year ago.
...
“Mortgage rates declined once again, as concerns about the slowing global economy and status of Brexit continued to drive investors’ demand for U.S. Treasuries, ultimately pushing yields lower,” said Joel Kan, Associate Vice President of Economic and Industry Forecasting. “Rates for most loan types were at their lowest levels in over a year, with the 30-year fixed mortgage rate falling to 4.55 percent – its lowest reading since last February. Although lower rates sparked a 3.5 percent increase in refinance applications, purchase activity was up only slightly last week and from a year ago.”

Added Kan, “Entry-level housing supply remains weak and is likely hindering some would-be first-time buyers from finding a home. This – along with faster growth in the higher price tiers – is why the average loan application size has risen to a new high for three straight weeks.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.55 percent from 4.64 percent, with points decreasing to 0.42 from 0.47 (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.

Rates would have to fall further for a significant increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 1% year-over-year.

by Bill McBride on 3/19/2019 08:37:00 PM

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

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

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Bill McBride on 3/19/2019 03:33:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in February

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.46 million in February, up 10.5% from January’s preliminary estimate and down 2.7% from last February’s seasonally adjusted pace.

On the inventory front, local realtor/MLS data, as well as data from other inventory trackers, suggest that the inventory of existing homes for sale at the end of February will be up 5.7% from last February.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 2.6% from a year earlier.

CR Note: Existing home sales for February are scheduled to be released on Friday, March 22nd. The consensus is for sales of 5.08 million SAAR.   Take the over!

by Bill McBride on 3/19/2019 01:25:00 PM

The CAR reported: California home sales rebound in February; median price dips, C.A.R. reports

California home sales bounced back in February after hitting the lowest sales level in more than 10 years the previous month, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today. February’s annual sales level was the highest in six months, and the monthly growth in sales was the highest since January 2011.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 399,080 units in February, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the February pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

February’s sales figure was up 11.3 percent from the revised 358,470 level in January and down 5.6 percent from home sales in February 2018 of 422,910. February’s decline was the smallest since July 2018, and the sales total was just shy of the 400,000 benchmark.

“Lower interest rates and stabilizing home prices motivated would-be buyers to get off the fence in February,” said C.A.R. President Jared Martin. “With mortgage rates reaching their lowest point in a year, housing affordability improved as buyers’ monthly mortgage payments became more manageable. Instead of the double-digit growth rates that we observed a few months ago, monthly mortgage payments increased by 2.7 percent, the smallest increase in the last 12 months.”
...
“While we expected the federal government shutdown during most of January to temporarily interrupt closings because of a delay in loan approvals and income verifications, the impact on January’s home sales was minimal,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “The decline in sales was more indicative of demand side issues and was broad and across all price categories and regions of the state. Moreover, growing inventory over the past few months has not translated into more sales.”
...
While statewide active listings have been increasing from the previous year at a double-digit pace for the last eight months, February’s rate was the smallest growth rate in the past six months and the third month in a row that listings decelerated. February’s active listings were up 19.2 percent from a year ago.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, improved on a year-over-year basis but was flat on a month-to-month basis. The Unsold Inventory Index was 4.6 months in February, unchanged from January but up from 3.9 months in February 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate. The jump in the UII from a year ago can be attributed to the moderate sales decline and the sharp increase in active listings.
emphasis added

Here is some inventory data from the NAR and CAR (ht Tom Lawler).

YOY % Change, Existing SF Homes for Sale
	NAR (National)	CAR (California)
Sep-17	-8.4%	-11.2%
Oct-17	-10.4%	-11.5%
Nov-17	-9.7%	-11.5%
Dec-17	-11.5%	-12.0%
Jan-18	-9.5%	-6.6%
Feb-18	-8.6%	-1.3%
Mar-18	-7.2%	-1.0%
Apr-18	-6.3%	1.9%
May-18	-5.1	8.3%
Jun-18	-0.5%	8.1%
Jul-18	0.0%	11.9%
Aug-18	2.1%	17.2%
Sep-18	1.1%	20.4%
Oct-18	2.8%	28%
Nov-18	4.2%	31%
Dec-18	4.8%	30.6%
Jan-19	4.6%	27%
Feb-19	NA	19.2%

by Bill McBride on 3/19/2019 10:42:00 AM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was up 4.6% year-over-year (YoY) in January, this was the sixth consecutive month with a YoY increase, following over three years of YoY declines.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, and Sacramento (through February) and Phoenix, and total existing home inventory as reported by the NAR (through January).  (I'll be adding more areas).

Click on graph for larger image.

The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory was up 105% YoY in Las Vegas in February (red), the eight consecutive month with a YoY increase.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.  Inventory was up 17% year-over-year in Houston in February.

Inventory is a key for the housing market.  I expect a further increase in inventory in 2019, but overall I think inventory will still be fairly low.

Also note that inventory in Seattle was up 164% year-over-year in February (not graphed)!