by Calculated Risk on 2/22/2012 01:48:00 PM

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

From AIA: Architecture Billings Index Remains Positive for Third Straight Month

On the heels of consecutive months of strengthening business conditions, the Architecture Billings Index (ABI) has now reached positive territory three months in a row. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 50.9, following a mark of 51.0 in December. This score reflects a slight increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.2, down just a notch from a reading of 61.5 the previous month.

“Even though we had a similar upturn in design billings in late 2010 and early 2011, this recent showing is encouraging because it is being reflected across most regions of the country and across the major construction sectors,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “But because we still continue to hear about struggling firms and some continued uncertainty in the market, we expect overall economic improvements in the design and construction sector to be modest in the coming months.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in January (slight expansion). 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 this suggests further declines in CRE investment in early 2012, but perhaps stabilizing later in 2012.


All current Commercial Real Estate graphs

by Calculated Risk on 2/22/2012 11:54:00 AM

First a comment from Michelle Meyer and Ethan Harris at Merrill Lynch:

One of the most encouraging aspects of the report was the continued drop in inventory. The number of homes on the market for sale fell further in January after plunging 11.5% in December. This has left inventory almost 21% below the level last January. Combined with the recent gain in home sales, months supply has tumbled to 6.1 months, the lowest since April 2006. However, we expect this to be a temporary cyclical low. Part of the drop in inventory reflects delays in the foreclosure process which has slowed the flow of distressed properties into the market. We think the foreclosure process will accelerate, which will speed up the flow of distressed inventory. We expect supply to edge back to 8 months this year.

The NAR reported inventory fell to 2.31 million in January. This is down 20.6% from January 2011, and this is about 8% above the inventory level in January 2005 (mid-2005 was when inventory started increasing sharply). This decline in inventory was a significant story in 2011.

The following graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

Click on graph for larger image.

This year (dark red for January) inventory is at the lowest level for a January since 2005. Inventory is still elevated - especially with the much lower sales rate - but lower inventory levels put less downward pressure on house prices (of course the level of distressed properties is still very high, and there is a significant shadow inventory).

Part of the reason inventory has fallen is because there are fewer foreclosures listed for sale. Merrill Lynch analysts think supply will edge back up to 8 months-of-supply as the lenders increase foreclosure activity.

There is also a seasonal pattern. Inventory usually starts increasing in February and March, and peaks in July and August. The seasonal increase in inventory will be something to watch this spring and summer, but the Merrill forecast would mean that inventory increases to over 3 million units this summer (assuming sales at the current rate). I don't think we will see inventory that high.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are slightly above the sales for the last four years (2008 through 2011), but well below the bubble years of 2005 and 2006.

The level of sales is still elevated due to investor buying. The NAR noted:

All-cash sales were unchanged at 31 percent in January; they were 32 percent in January 2011. Investors account for the bulk of cash transactions.

Investors purchased 23 percent of homes in January, up from 21 percent in December; they were 23 percent in January 2011.

Earlier:
• Existing Home Sales in January: 4.57 million SAAR, 6.1 months of supply
• Existing Home Sales graphs

by Calculated Risk on 2/22/2012 10:00:00 AM

The NAR reports: Existing-Home Sales Rise Again in January, Inventory Down

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in January from a downwardly revised 4.38 million-unit pace in December and are 0.7 percent above a spike to 4.54 million in January 2011.
...
Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in December.

Click on graph for larger image.

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

Sales in January 2012 (4.57 million SAAR) were 4.3% higher than last month, and were 0.7% above the January 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.31 million in January from 2.32 million in December. This is the lowest level of inventory since March 2005.

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.

Inventory decreased 20.6% year-over-year in January from January 2011. This is the eleventh consecutive month with a YoY decrease in inventory.

Months of supply decreased to 6.1 months in January, down from 6.4 months in December.


All current Existing Home Sales graphs

by Calculated Risk on 2/22/2012 08:21:00 AM

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

The Refinance Index decreased 4.8 percent from the previous week. The seasonally adjusted Purchase Index decreased 2.9 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.09 percent from 4.08 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500)increased to 4.32 percent from 4.30 percent ...

The purchase index is still moving sideways at a very low level.

by Calculated Risk on 2/21/2012 08:24:00 PM

There were some interesting comments from the Home Depot CEO today (transcript with via Seeking Alpha). Home Dept CEO Francis Blake talked about the favorable weather, but he thought there was more:

There are some interesting challenges in setting expectations for 2012. First, the macro data on housing suggest uncertainty. ... The Fed has noted that housing remains a drag on economic recovery with factors such as delayed household formation and credit supply, contributing to a continued imbalance between housing supply and demand. The Fed has suggested the policy actions will be needed to fix this, but it wouldn't appear that any major policy changes are likely in the near-term.

Second, despite this, the performance of our business particularly in the back half of 2011, would suggest the strengthening market. This quarter's comps were achieved against a very strong fourth quarter comp in 2010 and exceeded our internal forecast. But we're mindful that this past December and January were the fourth warmest on record, with much of the nice weather occurring across the heavily populated eastern U.S. Better weather translates into improved sales for exterior categories like building materials and also translates into increased customer transactions, which lift the entire business.

And in the Q&A:

Dennis McGill, Zelman & Associates: Just a question focused on some of the regions, you mentioned California being at the company average and Florida being above and 2 areas that we wouldn't normally attribute to being volatile from the weather standpoint. So just wondering if you could elaborate there, particularly in California, where it seemed like weather was pretty steady year-over-year, especially with some of the housing metrics improving in those markets?

CEO Blake: Dennis, I think that's exactly the point. I mean, wanted to call out California and Florida because they really aren't weather-related. And so that's an indication that there was more than just weather ... And I think just exactly as you said, that those markets are more reflective of not a housing recovery, but a stabilization in the markets that we've seen over the last 2 years, as they've just -- they've gotten kind off there, off the floor in effect on housing.

In other comments, Blake mentioned that we've seen a little improvement before, but those were policy related (like the housing tax credit).

CEO Blake: [W]e are now not -- we have no government programs to cloud what's happening. ... And the way we look at it is, there are some positives that you definitely see on housing.

He mentioned some negatives too, but it seems like they are seeing some improvement.

by Calculated Risk on 2/21/2012 04:02:00 PM

LPS released their First Look report for January today. LPS reported that the percent (and number) of loans delinquent declined in January from December, but that the percent (and number) of loans in the foreclosure process increased slightly.

The following table shows the LPS numbers for January 2012, and also for last month (Dec 2011) and one year ago (Jan 2011).

LPS: Loans Delinquent and in Foreclosure
	Jan-12	Dec-11	Jan-11
Delinquent	7.97%	8.15%	8.90%
In Foreclosure	4.15%	4.11%	4.16%
Less than 90 days	2,226,000	2,309,000	2,551,000
More than 90 days	1,772,000	1,792,000	2,168,000
In foreclosure	2,084,000	2,066,000	2,203,000
Total	6,082,000	6,167,000	6,922,000

At the current rate of decline, the number of delinquent lonas will be back to "normal" in about three years (around 4.5% to 5% of loans are delinquent even in good times). However the number of loans in the foreclosure process hasn't change year-over-year - although that will probably change soon with the mortgage servicer settlement (around 0.5% of loans in foreclosure is "normal").

by Calculated Risk on 2/21/2012 11:57:00 AM

Note: Vehicle miles have moved sideways for over four years. And gasoline consumption has declined slightly over the same period. For a discussion of the causes, see NDD's post at the Bonddad blog this morning: Why the decline in gasoline demand doesn't mean a recession -- yet. Among other points, NDD writes: "It appears that gasoline conservation is a top priority of consumers." and he provides a list (with data): Ridership of mass transit is up, online retail purchases have increased, automakers are selling more fuel efficient cars, teen driving is down, and more.

The Department of Transportation (DOT) reported:

• Travel on all roads and streets changed by +1.3% (3.2 billion vehicle miles) for December 2011 as compared with December 2010.

• Cumulative Travel for 2011 changed by -1.2% (-35.7 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

Even with a small year-over-year increase in December, the rolling 12 month total is mostly moving sideways.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 49 months - and still counting!

The second graph shows the year-over-year change from the same month in the previous year.

This is the first year-over-year increase in miles driven since February 2011.

With the recent increases in gasoline prices, we might see year-over-year declines again in January or February. But this doesn't mean a recession - instead, as NDD notes, it appears that behavior is changing, and also that the fleet is becoming more efficient ... and, of course, growth is still sluggish and holding back driving too.

by Calculated Risk on 2/21/2012 10:03:00 AM

From economist Tom Lawler: Number of Seriously-Delinquent FHA-Insured SF Loans Jumped Again in January; HUD Secretary “Fiddles” as FHA Burns

Data from the FHA’s Neighborhood Watch Early Warning System indicate that the number of FHA-insured loans that were seriously delinquent jumped again in January. According to report on the EWS for servicers who combined have an “active” FHA servicing portfolio of over 7.33 million loans, 732,775 of these loans were seriously delinquent at the end of January. While this report does not exactly match the SDQ numbers reported in various monthly FHA reports (which have not yet been released in January, it tracks the “official” numbers pretty closely. These data, combined with other data from the EWS (not shown here), suggest that the performance of the FHA’s pre-2010 book has continued to deteriorate significantly.

Based on this report, I estimate that the serious delinquency rate on FHA’s SF book in January (as measured by the FHA Monthly Outlook and/or FHA Monthly Report to the FHA commissioner) jumped to around 9.9% last month, up from 9.59% in December, 8.18% last June, and 8.89% last January.

As I noted last week, the pace of FHA loan modifications slowed dramatically in the latter part of last year, while the pace of property “conveyances” was shockingly low given the large number of seriously delinquent/in-foreclosure loans. Obviously, the slow pace of problem-loan “resolutions” has been at least partly behind the sharp increase in the number of seriously-delinquent FHA loans.

Many find it moderately disturbing that HUD Secretary Donovan has of late been working mainly on the big “mortgage settlement” -- and even worked to have part of the mortgage settlement money go to FHA – and has been “jawboning” Fannie and Freddie to “embrace” principal write-downs, while at the same time FHA’s problem-loan resolution activity plunged and the number of seriously delinquent FHA loans has surged. However, headlines such as “Donovan Fiddles as FHA Burns” seem a bit strong – but I used it anyway!

by Calculated Risk on 2/21/2012 08:30:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth in January again above average

The Chicago Fed National Activity Index decreased to +0.22 in January from +0.54 in December, but remained positive for the second straight month for the first time in a year. ...

The index’s three-month moving average, CFNAI-MA3, increased from +0.06 in December to +0.14 in January, reaching its highest level since March 2011. January’s CFNAI-MA3 suggests that growth in national economic activity was slightly above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests growth slightly above trend in January - but still not strong growth.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 2/20/2012 10:01:00 PM

Reuters (via Peter Spiegel) Euro zone finance ministers strike deal on second Greek package. Financing of 130 bln euros, debt-to-GDP of 121 pct by 2020

Update: From Reuters: Euro zone strikes deal on second Greek bailout package

Euro zone finance ministers struck a deal ... that includes new financing of 130 billion euros and aims to cut Greece's debt to 121 percent of GDP by 2020, two EU officials said.

"The financial volume (of the Greek package) is 130 billion euros and debt-to-GDP (will be) 121 percent. Now it's down to work on the statement," one official involved in the negotiations told Reuters.
...
Private sector holders of Greek debt are expected to take losses of up to 53.5 percent on the nominal value of their bonds as part of a debt exchange that will reduce Greece's debts by around 100 billion euros.

Press conference soon

EU Press Releases (no statement yet)