by Calculated Risk on 7/19/2011 07:01:00 PM

As I mentioned earlier, the U.S. is on pace for a record low number of multifamily completions in 2011. That is just part of the story ... the U.S. is on pace for a record low number of total completions, and the fewest net housing units added to the housing stock, since the Census started tracking completions.

Here are some excerpts from Tom Lawler today:

The Commerce Department reported that US manufactured housing shipments ran at a seasonally adjusted annual rate of 48,000 in May, up slightly from April’s 46,000, but still an incredibly low pace by historical standards.
...
Total housing production in 2011 should fall south of 600,000 units, compared to the 2.092 million housing units that came on line in 2006.

Sadly, there are no good, timely data on the likely number of housing units that will be lost to various factors (demolition, conversions, disaster, etc.). The Census 2010 data suggested that the annual “scrappage” rate was substantially lower than other Census data had suggested last decade, though that could well have been related to the housing boom years, with higher conversions or units added from non-residential use than various surveys (based on relatively small samples) suggested. Anecdotal evidence suggests that scrappage rates of late would not be that low, and a conservative estimate for 2011 would be in the 250,000 range – implying growth in the housing stock for the calendar year of under 350,000 units.

If those numbers are in the ballpark, then from April 1st of last year (the Census 2010 snapshot) to the end of 2011, the US housing stock will probably have grown by only about 706,000 units or so. Sadly, there are no good, reliable, and timely data on US household growth since April 1, 2010 (theme on government housing data!), making it tough to estimate household growth from 4/1/2010 to 12/31/2011. If annualized household growth over that 21-month period were, say, around 800,000 (below “trend”), then the “excess” supply of housing from April Fool’s Day 2010 to the end of 2011 would have shrunk by about 694,000.

I put the following table together for the last few years. For 2011 I used the first half pace (manufactured housing through May).

As I noted earlier, multi-family housing completions will fall even further and will probably be close to 100 thousand units this year. Also note that Lawler thinks scrappage is closer to 250,000 per year.

So this means there will be a record low number of housing units added to the housing stock this year (good news with all the excess inventory), and that the overhang of excess inventory should decline significantly in 2011.

Housing Units added to Stock (000s)
	2005	2006	2007	2008	2009	2010	2011 (1st Half pace)
1 to 4 Units	1,673.4	1,695.3	1,249.8	842.5	534.6	505.2	437.0
5+ Units	258.0	284.2	253.0	277.2	259.8	146.5	119.0
Manufactured Homes	146.8	117.3	95.7	81.9	49.8	50	46
Sub-Total	2,078.2	2,096.8	1,598.5	1,201.6	844.2	701.7	602.0
Scrappage	200	200	200	200	150	150	150
Total added to Stock	1,878.2	1,896.8	1,398.5	1,001.6	694.2	551.7	452.0

The key points are:
1) there will be record low number of completions this year, and
2) that means a record low number of housing units added to the stock, and
3) that means the excess vacant inventory is declining.

Earlier:
• Housing Starts increase in June
• Multi-family Starts and Completions

by Calculated Risk on 7/19/2011 02:58:00 PM

From DataQuick: Golden State Mortgage Defaults Drop to Four-Year Low

A total of 56,633 Notices of Default (NoDs) were recorded at county recorders offices during the April-to-June period. That was down 17.0 percent from 68,239 for the prior quarter, and down 19.2 percent from 70,051 in second-quarter 2010, according to San Diego-based DataQuick.

Last quarter's activity was the lowest for any quarter since 53,493 NoDs were recorded in the second quarter of 2007. It was well below half the record 135,431 default notices recorded in the first quarter of 2009.

"A lot of theories are being floated as to why the numbers are down. Bank policy changes. Legal challenges. Politics. Holding back temporarily so as not to flood the market. The fact of the matter is that no one really knows, outside of lending and servicing industry insiders. ..." said John Walsh, DataQuick president.
...
Most of the loans going into default today are from the 2005-2007 period: the median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than two years, indicating that weak underwriting standards peaked then.

And on completed foreclosures:

Trustees Deeds recorded (TDs), or the actual loss of a home to foreclosure, totaled 42,465 during the second quarter. That was down 1.4 percent from 43,052 for the prior quarter, and down 10.9 percent from 47,669 for second-quarter 2010. The all-time peak was 79,511 in third-quarter 2008.

Last quarter's trustees deeds total was the lowest since 35,431 were filed in fourth quarter 2010, and the second-lowest since fourth quarter 2007, when 31,676 were filed.

Click on graph for larger image in graph gallery.

This graph shows the annual Notices of Default (NODs) filed in California. The current year was estimated at the total for Q1 plus 3 times the Q2 rate.

California had a significant housing bust in the early '90s, with defaults peaking - and prices bottoming - in 1996. That bust was mild compared to the recent housing bust - and defaults are still way above the 1996 peak.

On the reasons for the decline: I think legal and political issues are more focused on the foreclosure process, and that the filing of default notices is probably still pretty routine - so even though the foreclosure pipeline is still pretty full, I think the decline in NODs actually suggests fewer defaults.

Earlier:
• Housing Starts increase in June
• Multi-family Starts and Completions

by Calculated Risk on 7/19/2011 01:48:00 PM

There was a report last week from Nick Timiraos at the WSJ: U.S. Tackles Housing Slump that "The Obama administration is ramping up talks on how to revive the housing market".

From Renae Merle at the WaPo: Obama administration not planning another big housing program

The Obama administration has no plans to introduce another large-scale program for relieving the troubled housing market, despite the president’s recent admission that his past efforts have not solved the problem, according to a senior administration official.
...
“There is no money and, to some degree, we have run out of ideas. I have seen them all,” said Mark Zandi, chief economist of Moody’s Analytics. “I don’t think there is something grand that could make a big difference.”
...
The biggest opportunity for wide-ranging change may be a settlement being negotiated between a coalition of state attorneys general and large banks related to flawed foreclosure practices, industry officials and consumer advocates say.

Unfortunately most of the programs so far have fallen short of expectations (HAMP) or were misdirected (Housing Tax Credit).

Some of the new policy ideas being discussed - like converting some delinquent homeowners to renters using a deed-in-lieu of foreclosure, then placing the property under the current REO Tenant-in-Place Rental Policy¹ - and finally selling the property to investors with tenant-in-place - had some merit. But it appears there will won't be any new programs, except maybe a little something from the servicer agreement.

¹ The current REO Tenant-in-Place policy is to protect tenants of foreclosed investor owned property.

by Calculated Risk on 7/19/2011 10:28:00 AM

Earlier:
• Housing Starts increase in June

Although the number of multi-family starts can vary significantly from month to month, apartment owners have been seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and have been breaking ground this year. So I've been forecasting a pickup in multi-family starts.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

The rolling 12 month total for starts (blue line) is now above the rolling 12 month for completions (red line), and they are heading in opposite directions. Starts are picking up and completions are declining.

To summarize:
• Multi-family starts will be up strong this year, but
• Multi-family completions will be at a record low.

It is important to note that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). Still this is bright spot for construction.

by Calculated Risk on 7/19/2011 08:45:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 629,000. This is 14.6 percent (±10 9%) above the revised May estimate of 549,000 and is 16.7 percent (±11.8%) above the June 2010 rate of 539,000.

Single-family housing starts in June were at a rate of 453,000; this is 9.4 percent (±11.1%)* above the revised May figure of 414,000. The June rate for units in buildings with five units or more was 170,000.

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 624,000. This is 2.5 percent (±1.3%) above the revised May rate of 609,000 and is 6.7 percent (±2.0%) above the June 2010 estimate of 585,000.

Single-family authorizations in June were at a rate of 407,000; this is 0.2 percent (±1.0%)* above the revised May figure of 406,000. Authorizations of units in buildings with five units or more were at a rate of 198,000 in June.

Click on graph for larger image in graph gallery.

Total housing starts were at 629 thousand (SAAR) in June, up 14.6% from the revised May rate of 549 thousand.

Single-family starts increased 9.4% to 453 thousand in June.

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

This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

This was above expectations of 575 thousand starts in June. Multi-family starts are increasing in 2011 - although from a very low level. This is one of the bright spots for construction and the economy this year.

I'll have more on housing starts later.

by Calculated Risk on 7/18/2011 07:59:00 PM

Note: There are various reports that the servicers are still filing documents with robo-signing. Geesh!

From Eric Wolff at the North County Times: Foreclosure auctions getting pricey

Competition at foreclosure auctions has become fierce in 2011 as more bidders battle over fewer properties, according to analysts and pricing data.

The number of bidders ballooned this spring, as small-time investors entered the market and institutional investors started buying more ...

In the first half of 2011, the median gap between opening bids and winning bids grew to the highest amount in the last five years, according to a North County Times analysis of data from ForeclosureRadar.
...
"Margins have started to dry up a lot," said Bruce May, a Vista house investor who has abandoned the auctions because of the competition.

That last comment reminds me of the famous Yogi Berra quote: "It's so crowded, nobody goes there.". The lenders would probably get higher prices if they put the auctions online and gave people better advance notice.

Earlier:
• NAHB Builder Confidence index increases in July, Still Depressed
• Residential Remodeling Index at new high in May
• Lawler: Existing Home Sales Down in June

Weekend:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th

by Calculated Risk on 7/18/2011 03:58:00 PM

Economist Tom Lawler sent me an update to his June forecast (about the same sales and inventory forecast as the post this weekend with more detail), from Lawler:

Based on my regional tracking of local home sales reports, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 4.71 million in June, down 2.1% from May’s pace and down 9.9% from last June’s pace. While at first glance this below-consensus forecast might seem at odds with May’s increase in pending sales, that increase followed a sharp drop in April, and pending sales tend to lead closed sales by over a month (though lags vary dramatically across areas/regions).

Last June the NAR estimated that existing home sales ran at a seasonally adjusted annual rate of 5.23 million. Looking at local realtor reports, there were only a handful of areas experiencing YOY increases in sales; some experienced modest declines; and quite a few experienced sizable YOY declines. This June had the same number of business days as last June, and this June’s seasonal factor shouldn’t be much different from last June’s.

On the inventory front, the NAR’s numbers appear to display a different seasonal pattern than do actual listing data, though I don’t have a long time series comparison. Based on the limited information I have, I expect the NAR’s inventory measure will decline by about 1.5% from May to June, and will be down about 5.7% from last June. The NAR’s inventory measure has shown decidedly smaller YOY declines this year than have actual listings, potentially suggesting that sales vs. a year ago have been weaker than the NAR’s estimates suggest.

On the pending home sales front, deriving estimates is more challenging because many realtor groups don’t report statistics on new pending sales to the public. Of course, many realtor groups don’t actually TRACK new pending sales, and as a result the NAR’s sample for pending sales is only about half as large as that used to estimate closed existing home sales. This is one of many reasons why the correlation between the NAR’s pending home sales index and closed existing home sales is not as high as one might expect.

However, based on the data I’ve seen so far, I estimate that the NAR’s pending home sales index in June will show a seasonally adjusted increase of 2.6% from May, which translates into a YOY gain of 20%. Last June, of course, pending sales were extremely depressed, as the federal home buyer tax credit – which expired based on contract signing last April – led many home buyers to accelerate planned home purchases. Based on the May and June pending sales data, existing home sales should rebound modestly in July and August.

by Calculated Risk on 7/18/2011 01:19:00 PM

The next emergency EU summit is scheduled for this coming Thursday.

Wolfgang Münchau is very concerned, from the Financial Times: Plan D stands for default and death of euro

The biggest single danger in the eurozone crisis now is that events are moving too fast ... It was a huge mistake to postpone an emergency EU summit until Thursday this week.
excerpt with permission

This is a key meeting. If there is no agreement on how to proceed, the markets could really panic.

Also many people were disappointed with the stress tests released Friday. From the WSJ: Euro Stress Tests Tell Only Half the Story

Here is what the official stress tests results didn't tell you: 27 European banks would need to raise a combined €82 billion ($155 billion) in new capital ... That is well above the €2.5 billion shortfall, spread across eight banks, announced Friday.

The €82 billion doesn't tell the full story.

Naturally bond yields are rising. A key European analyst (I can't name) put out a note last night that ended with "Run like hell."

The Greek 2 year yield is up to a record 36%.

The Portuguese 2 year yield is up to a record 20.4%.

The Irish 2 year yield is up to a record 23.2%.

And of bigger concern ... the Italian 2 year yield is up to a record 4.6%. And the Spanish 2 year yield is up to a record 4.6%.

Still much lower than Greece, Portugal and Ireland, but rising fast.

Check out the Italian and Spanish 10 year yields for more hockey sticks! Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased to 15 in July from 13 in June. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Gains Two Points in July

Builder confidence in the market for newly built, single-family homes rose two points to 15 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today. The gain largely offsets a three-point dip recorded in June, and marks the ninth time out of the past 10 months in which the index has held within the same three-point range.
...
"We view the upward movement in the July HMI as a correction from an exceptionally weak number in June that was at least partly attributable to negative economic news and the close of a disappointing spring selling season," said NAHB Chief Economist David Crowe. "The strong rebound in sales expectations for the next six months likewise marks a return to trend. Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve."
...
Two out of three of the HMI's component indexes rebounded in July from declines in the previous month. The component gauging current sales conditions rose two points to 15, returning to its May level, while the component gauging sales expectations in the next six months rose seven points to 22, which is where it stood in April. The component gauging traffic of prospective buyers held even with the previous month, at 12.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the July release for the HMI and the May data for starts (June housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 7/18/2011 08:12:00 AM

The BuildFax Residential Remodeling Index was at 124.3 in May, up from 109.7 in April. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 22% year-over-year--and for the nineteenth straight month--in May to 124.3, the highest number in the index to date. Residential remodels in May were up month-over-month 14.6 points (13%) from the April value of 109.7, and up year-over-year 22.1 points from the May 2010 value of 102.2.
...
All regions were up month-over-month, with the Northeast up 9.8 points (12%), the South up 7.3 points (7%), the Midwest up 16.3 points (18%), and the West up 8.7 points (7%).
...
"Through the first five months of 2011 we have seen impressive gains within the remodeling index and May has continued that trend with a record setting month," said Joe Emison, Vice President of Research and Development at BuildFax. "Even with the continued struggles in the economy, the remodeling industry has been a bright spot, as consumers look to make upgrades to their current homes, rather than purchasing a new residence.”

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 22% from May 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com