by Calculated Risk on 9/21/2011 10:00:00 AM

The NAR reports: August Existing-Home Sales Rise Despite Headwinds, Up Strongly from a Year Ago

Total existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6 percent higher than the 4.24 million unit level in August 2010.
...
Total housing inventory at the end of August fell 3.0 percent to 3.58 million existing homes available for sale, which represents an 8.5-month supply4 at the current sales pace, down from a 9.5-month supply in July

Click on graph for larger image in graph gallery.

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

Sales in August 2011 (5.03 million SAAR) were 7.7% higher than last month, and were 18.6% above the August 2010 rate (depressed in Aug 2010 following expiration of tax credit).

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 3.58 million in August from 3.69 million in July.

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, so 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.

Inventory decreased 13.1% year-over-year in August from August 2010. This is the seventh consecutive month with a YoY decrease in inventory.

Months of supply decreased to 8.5 months in August, down from 9.5 months in July. This is much higher than normal. These sales numbers were well above the consensus, but just slightly above Lawler's forecast using the NAR method.

I'll have more soon ...

by Calculated Risk on 9/21/2011 08:12:00 AM

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

From AIA: Architecture Billings Index Turns Positive after Four Straight Monthly Declines

On the heels of a period of weakness in design activity, the Architecture Billings Index (ABI) took a sudden upturn in August. ... The American Institute of Architects (AIA) reported the August ABI score was 51.4, following a very weak score of 45.1 in July. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.9, up sharply from a reading of 53.7 the previous month.

“Based on the poor economic conditions over the last several months, this turnaround in demand for design services is a surprise,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Many firms are still struggling, and continue to report that clients are having difficulty getting financing for viable projects, but it’s possible we’ve reached the bottom of the down cycle.”

Click on graph for larger image in graph gallery.

This graph shows the Architecture Billings Index since 1996. The index increased to 51.4 in August from 45.1 in July. 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. So the recent contraction suggests further declines in CRE investment in early 2012, but possibly flattening out in 9 to 12 months (just one month's data).

by Calculated Risk on 9/21/2011 07:24:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 2.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 4.7 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 4.29 percent, with points increasing to 0.41 from 0.38 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (> $417,500) decreased to 4.55 percent from 4.57 percent, with points increasing to 0.46 from 0.42 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

August was an especially weak month for this index. This increase was pretty small, and although this doesn't include the large number of cash buyers, this suggests fairly weak home sales in September and October.

Note from the MBA:

This week's results are based on an enhanced sample which captures more than 75% of all retail and consumer direct channel mortgage applications, compared to 50% previously. This expansion in survey coverage will benefit all users of the survey as it will increase the representativeness of the data.

Changes to the Weekly Application Survey include:

• The survey captures more than 75% of all U.S. retail and consumer direct mortgage applications, compared to 50% previously.
• MBA has tracked the old sample together with the new sample since January 14, 2011 to ensure that the new information is comparable with historical data.
• Due to the high correlation between the old sample and the new sample, no restatement of the historical data appears necessary.
• The release now includes additional information regarding mortgage rates, including reporting on 5/1 ARM rates and 30-year fixed rates for jumbo loans.

Note: Existing home sales will probably increase to around 4.92 million SAAR in August (Lawler's estimate) - above the consensus forecast of 4.75 million SAAR - but this index suggests another decline in September and October.

by Calculated Risk on 9/20/2011 08:16:00 PM

From the Financial Times: Troika makes ‘good progress’ on Greek deal

The European Commission said “good progress” was made in a teleconference between Athens and negotiators ... The full mission is expected to come back to Athens early next week to resume the review ...
excerpt with permission

There will be more details tomorrow, but it sounds like the next installment will happen in early October. This probably means a large number of public sector layoffs will be announced very soon.

Earlier:
• Housing Starts decline in August
• Philly Fed State Coincident Indexes Decline in August
• Multi-family Starts and Completions, Starts and the Unemployment Rate

by Calculated Risk on 9/20/2011 04:48:00 PM

From Bloomberg: Greece Loan Talks Resume After ‘Productive’ First Meeting

Greek Prime Minister George Papandreou’s government held a second round of talks with its main creditors today ... call started at 9 p.m. Greek time [2 PM ET].

Papandreou will chair a Cabinet meeting at 11:30 a.m. Athens time tomorrow to discuss the content of the talks with the so-called troika team, which comprises the European Union, European Central Bank and International Monetary Fund.

There should be an announcement later tonight or tomorrow morning.

The Greek 2 year yield was up to 64.2%. The Greek 1 year yield is at 130%.

The Portuguese 2 year yield is up to 17.3% and the Irish 2 year yield was down to 9.3%.

The Italian 10 year yield was up to 5.7% following the downgrade.

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 9/20/2011 01:41:00 PM

Since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - it makes sense that 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 total.

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.

Click on graph for larger image in graph gallery.

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 (although completions ticked up a little in August).

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.

Housing Starts and the Unemployment Rate

The following graph shows single family housing starts (through August) and the unemployment rate (inverted) through August. Note: there are many other factors impacting unemployment, but housing is a key sector.

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts have moved sideways for the last two and a half years and this is one of the reasons the unemployment rate has stayed elevated.

With the huge overhang of existing housing units, this key sector hasn't been participating in the recovery. This is what I expected when I first posted the above graph over two years ago!

The good news is residential investment in multi-family and home improvement is increasing modestly, but construction job growth will remain sluggish until the excess housing supply is absorbed.

Earlier:
• Housing Starts decline in August

by Calculated Risk on 9/20/2011 11:15:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for August 2011. In the past month, the indexes increased in 26 states, decreased in 17, and remained unchanged in seven for a one-month diffusion index of 18. Over the past three months, the indexes increased in 33 states, decreased in 16, and remained unchanged in one (Maryland) for a three-month diffusion index of 34.

Note: These are coincident indexes constructed from state employment data. 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, 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.

Click on graph for larger image.

This 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 August, 30 states had increasing activity, the lowest number since January 2010. Looking back at previous recessions, the current level is close to when the U.S. entered recession - however it is important to remember that August was an especially weak month due to the debt ceiling debate.

In February, 47 states showed increasing activity.

Here is a map of the three month change in the Philly Fed state coincident indicators. Several states have turned red again. This map was all red during the worst of the recession, and all green not long ago.

Earlier:
• Housing Starts decline in August

by Calculated Risk on 9/20/2011 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 571,000. This is 5.0 percent (±10 6%)* below the revised July estimate of 601,000 and is 5.8 percent (±12.0%)* below the August 2010 rate of 606,000.

Single-family housing starts in August were at a rate of 417,000; this is 1.4 percent (±10.3%)* below the revised July figure of 423,000. The August rate for units in buildings with five units or more was 148,000.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 620,000. This is 3.2 percent (±1.0%) above the revised July rate of 601,000 and is 7.8 percent (±1.4%) above the August 2010 estimate of 575,000.

Single-family authorizations in August were at a rate of 413,000; this is 2.5 percent (±0.9%) above the revised July figure of 403,000. Authorizations of units in buildings with five units or more were at a rate of 178,000 in August.

Click on graph for larger image in graph gallery.

Total housing starts were at 571 thousand (SAAR) in August, down 5.0% from the revised July rate of 601 thousand (revised from 604).

Single-family starts declined 1.4% to 417 thousand in August.

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 been mostly moving sideways for about two years and a half years - with slight ups and downs due to the home buyer tax credit.

Multi-family starts are increasing in 2011 - although from a very low level. This was below expectations of 592 thousand starts in August, but permits increased in August suggesting a slight increase for starts in September.

Still "moving sideways".

by Calculated Risk on 9/19/2011 09:10:00 PM

From the WSJ: Greece Strikes Optimistic Note on Aid Talks

Greece said it had "a productive and substantive discussion" with its official creditors on Monday ... and a Greek finance ministry official said an agreement was close. ... A Greek official said an announcement was likely on Wednesday.
...
"We will publish this week decisions on the restructuring of public bodies," [Finance Minister Evangelos Venizelos] told a business conference Monday. "In light of the new budget, it is clear that our emphasis will be on the spending side."

From Bloomberg: Italy Rating Lowered by S&P, Outlook ‘Negative’

Italy’s credit rating was cut by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden.

The rating was lowered to A from A+, with a negative outlook, S&P said in a statement.

by Calculated Risk on 9/19/2011 05:30:00 PM

From economist Tom Lawler:

Based on a fair amount of data from local realtor associations/boards/MLS across the country, I project that existing home sales as estimated by the National Association of Realtors will come in at a seasonally adjusted annual rate of about 4.92 million for August, up 5.4% from July and up 15.8% from last August. Unadjusted sales should show a higher YOY gain – over 18% -- reflecting the higher business day count/seasonal factor this August vs. last August.

This estimate is significantly above the “consensus” forecast of 4.75 million SAAR, but it is what the local data available suggest. A sizable number of markets showed YOY gains of 20% or more (in some cases by a lot), including (but not limited to) a fair number of markets in the middle of the country. Of course, sales in many of those markets were extremely weak last August, which was pretty soon following the expiration of the homebuyer tax credit.

On the inventory side, there is absolutely no doubt that the inventory of homes for sale fell from the end of July to the end of August, and was down significantly from a year ago nationwide. E.g., the “Department of Numbers” website (formerly and more appropriately named “HousingTracker”) shows that active residential listings in the 54 metro markets it covers declined by 2.6% (monthly average of weekly data) from July to August, and were down 14.1% from last August. While these 54 metro areas don’t generally represent the US as a whole, other markets not in this report that I follow on average had similar, though somewhat smaller, declines. NAR inventory figures do not always follow what MLS listing reports might suggest, however. Moreover, NAR inventory numbers this year have not shown the same YOY % declines as various aggregated listings reports.

A “best guess” would be that the NAR’s inventory number for August will be down 2.5% from July, and down 13.5% from last August. If that turns out to be the case, then August’s “months’ supply” number (unadjusted inventory divided by seasonally adjusted monthly sales!) would come in at 8.7 months, down from 9.4 months in July, and 11.7 months last August.

CR Note: The NAR is scheduled to report August existing home sales on Wednesday at 10 AM ET.