by Calculated Risk on 4/18/2012 03:42:00 PM

CR note: This is an important topic on trying to understand the number of excess vacant housing units in the US. Unfortunately the various surveys do not match up with the decennial Census data. It appears the vacancy rates in the HVS survey are way too high - yet this is the data most analysts use to estimate the excess number of vacant housing units! In other words, most reported estimates are way too high. The good news is the Census Bureau is trying to understand why ...

From economist Tom Lawler (Lawler identified this issue and pushed for this review):

The Census Bureau posted the following paper presented at the January 2012 meeting of the Federal Committee on Statistical Methodology, and folks interested in the topic should read it.

"Evaluation of Gross Vacancy Rates From the 2010 Census Versus Current Surveys: Early Findings from Comparisons with the 2010 Census and the 2010 ACS 1-Year Estimates" by Arthur R Cresce, Ph. D., Assistant Division Chief for Housing Characteristics, Social, Economic and Housing Statistics Division,
U.S. Census Bureau, SEHSD Working Paper Number 2012-07

Here is an excerpt of the purpose of the paper.

"This paper is part of a larger effort to understand why there are differences in the level of occupied and vacant housing units among the 2010 Census, the 2010 American Community Survey (ACS), the Current Population Survey/Housing Vacancy Survey1 (HVS), and the American Housing Survey2 (AHS). The specific focus of this paper is to provide a snapshot of research completed to date on factors that might explain differences in the level of vacant and occupied housing units between the 2010 Census and 2010 American Community Survey (ACS). Thus, this paper is not intended to answer all questions or issues concerning these differences. The 2010 ACS 1-year estimate for the gross vacancy rate (GVR) was 13.1 percent compared to 11.4 percent for the 2010 Census. We expect to produce a more comprehensive report on the 2010 Census – ACS differences in 2012 with additional reports to address the differences between the 2010 Census, the HVS and AHS. The goals of these reports are: 1) to understand better why these totals differ and 2) to address particular factors, where possible, that might lead to more consistent results across data collection efforts in the future.”

As noted above, this paper focuses on the decennial Census gross vacancy rates and the 2010 ACS gross vacancy rates. The paper notes, however, that Census analysts are also focusing on decennial Census vacancy rates vs. the HVS vacancy rates, as the below excerpt indicates.

“We plan to produce a series of reports in 2012 that will provide a more in depth analysis of potential factors that could explain the reasons for these differences, not only between the ACS and the census, but also among the ACS, the census and the Housing Vacancy Survey. From these reports, we hope to draw conclusions that will enable us, where possible, to take specific actions that could help provide more consistent results between the ACS and the census and, in general, among all our current surveys.”

Here are some summary conclusions from the paper.

“1. Although the census and the ACS have different reference periods and different residence rules, we do not believe differences in the reference period and residence rules were major contributors to the overall difference in the gross vacancy rates. However, problems can arise when implementing reference periods combined with residence rules. In the 2010 census, vacant housing units were enumerated in either Nonresponse Followup (NRFU) or in Vacant Delete Check (VDC) which was at least two months after Census Day. This enumeration of the Census Day reference date can make the determination of occupancy status problematic. FRs in the ACS and census enumerators can also misunderstand or misapply a usual residence or current residence rule.

“2. Response categories for occupancy status and vacancy status are similar between the ACS and the 2010 Census, but the way the questions are asked are different. It is not clear, though, if this played a role in explaining some of the differences in classification of housing units.

“3. The 2010 ACS sample was not drawn from the 2010 Census, which may help to explain at least a portion of the difference between the ACS and census GVRs.

“4. Large differences in the reporting of “Other” vacancy status and a possible connection between difficulty in obtaining a response (as measured by percent CAPI in the ACS and “hard-to-count” scores in the census) and differences in the GVR may provide some clues to understanding these differences.

“5. The census implemented coverage improvement procedures, such as special methods to review and confirm the status of housing, which are unique to the census and are not implemented in the ACS. The VDC operation in 2010 resulted in a net decrease of about 537 thousand vacant units.

“6. It was clear from debriefings with interviewers that they faced a very difficult task, Despite common procedures, differences in interpretation of what is an occupied unit can occur, especially in hard to count areas and, in general, in areas experiencing large numbers of foreclosures. Determining the occupancy status of a unit is especially hard in some areas when no household members can be contacted and neighbors are unwilling to provide information. “

Net, the paper suggests that the aggregate ACS vacancy rates for 2010 were probably “too high,” though by how much varied significantly by area/region.

Since the Housing Vacancy Survey vacancy rates were well above the ACS vacancy rates, the implication is that the HVS vacancy rates are substantially overstated. However, why the HVS vacancy rates are way too high is still being investigated.

Census currently plans to release the HVS for the first quarter of 2012 at the end of April, though it is not clear why!

by Calculated Risk on 4/18/2012 02:19:00 PM

From Jon Lansner at the O.C. Register: O.C. builder Lyon Homes orders soar 89

Builder William Lyon Homes of Newport Beach says it's had a quick business revival as it exited bankruptcy.

Highlights for Lyon — building in California, Nevada and Arizona — for the three months ended March 31:

• New home orders: 321, up 89% vs. a year ago and first 300-plus orders since 2008′s 2nd quarter. (Southern California sales were up 20%.)

• Homes closed: 128, up 15% vs. a year ago.

• Cancellation rate: 9% vs. 15% vs. a year ago.

CEO Gen. William Lyon: "The spring selling season is off to a great start."

William Lyon Homes filed for bankruptcy last November, and emerged from bankruptcy in February.

Note that Lyon builds in California, Arizona and Nevada - all hard hit states.

We've been seeing similar comments from other home builders, but this hasn't shown up yet in the Census Bureau's monthly new home sales report.

by Calculated Risk on 4/18/2012 10:47:00 AM

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

From AIA: Positive Conditions Persist for Architecture Billings Index

The commercial sector continues to lead the Architecture Billings Index (ABI) which has remained in positive territory for the fifth consecutive month. 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 March ABI score was 50.4, following a mark of 51.0 in February. 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 56.6, down from mark of 63.4 the previous month.

“We are starting to hear more about improving conditions in the marketplace, with a greater sense of optimism that there will be greater demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “But that is not across the board and there are still a number of architecture firms struggling so progress is likely to be measured in inches rather than miles for the next few months.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in March (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 mid-year.

All current Commercial Real Estate graphs

by Calculated Risk on 4/18/2012 08:28:00 AM

Form the MBA: Refinance Applications Up, Purchase Applications Down in Latest MBA Weekly Survey

The Refinance Index increased 13.5 percent from the previous week. The seasonally adjusted Purchase Index decreased 11.2 percent from one week earlier.
...
The refinance share of mortgage activity increased to 75.2 percent of total applications from 70.5 percent the previous week.
...
Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February. Refinance activity picked up in response, increasing 13.5 percent for the week. Participants in our survey indicated that about 32 percent of this refinance volume was for HARP loans," said Jay Brinkmann, MBA's Chief Economist and SVP of Research and Education. "While purchase activity declined sharply for the week, this was mostly due to a 23 percent drop in applications for FHA purchase loans. This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week. This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010. The demand for conventional purchase loans was down only slightly."

The average loan size of all loans for home purchase in the US was $233,381 in March 2012, up from $225,463 in February 2012.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05 percent from 4.10 percent,with points increasing to 0.45 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

by Calculated Risk on 4/17/2012 07:58:00 PM

This might speed up the short sale approval process, from Freddie Mac: Communication Time Lines for Short Sales

The new requirements introduce specific response time frames for certain activities in the short sale process ... Effective for new evaluations conducted on or after June 15, 2012, Servicers must comply with the following minimum communication time frames for all short sales. If feasible, Servicers are encouraged to implement these changes prior to the effective date of June 15, 2012.

Here is a key section:

Within five days of an evaluation decision, but no later than 30 days following receipt of a complete BRP [Borrower Response Package], the Servicer must provide to the Borrower an evaluation decision and send the appropriate Borrower Evaluation Notice in accordance with Section 64.6(d)(5).
...
There may be some situations in which a Servicer will be unable to provide a decision within 30 days following receipt of a complete BRP (e.g., extended negotiations with the MI). In such cases, the Servicer must notify the Borrower within the 30 day time limit that the BRP is still under review and each week thereafter provide the Borrower a status update indicating the reason(s) why a decision is pending. The weekly status updates may be communicated verbally or in writing. However, the Servicer must provide the Borrower with a decision and send the appropriate Borrower Evaluation Notice no later than 60 days after receipt of a complete BRP.

Fannie Mae is also implementing new timelines.

And on HARP from Mary Ellen Podmolik at the Chicago Tribune: Freddie Mac to ease refinancing program's guidelines for borrowers

Freddie Mac early this week will ease its mortgage underwriting formulas to boost the number of homeowners who qualify for the government's home loan refinancing program.
...
In response to complaints from lenders, Freddie Mac this week will undertake a "fine-tuning" of its underwriting process, according to Freddie Mac spokesman Brad German. Specifics of how the automated underwriting models will be altered aren't being disclosed, even to lenders, but some homeowners who have been turned down for the program may now qualify, he said.

"It will be a noticeable, positive change for the homeowner," German said. "It will help increase the number of borrowers who can refinance under HARP and take advantage of today's rates."

Mortgage broker Soylent Green is People writes: "So many HARP eligible loans diagnosed as EA-I to EA-3 (EA = Expanded Approval, code for “unacceptable risk” to many lenders) the Agencies are feeling the heat from borrowers turned away and changing how their AU systems score loans."

by Calculated Risk on 4/17/2012 04:38:00 PM

From DataQuick: Southland Home Sales Up; Median Price Almost Back to Year-Ago Level

Southern California home sales shot up last month from February amid the usual surge in late-winter shopping, but the gain over a year earlier was modest.
...
A total of 19,953 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 28.1 percent from 15,573 in February, and up 2.8 percent from 19,412 in March 2011, according to San Diego-based DataQuick.

... On a year-over-year basis, Southland sales have increased for three consecutive months, and for seven out of the last eight months. However, last month’s Southland sales total was still 18.6 percent below the average for all the months of March since 1988.
...
“The year is young and lots could still change, but the results from the first big sales month of 2012 suggest the market is stuck in low gear. This remains a very gradual – not to mention fragile – recovery. Last month's big gain in sales from February was seasonal. A lot more people get out and shop after the holidays and as spring approaches. More telling was the relatively small gain in sales activity compared with a year ago. It's a reminder that, for many potential buyers, lower prices and amazingly low mortgage rates still aren’t enough to get them over their hurdles: tight credit, home values below what they owe on their mortgages, and uncertainties over the economy and home prices,” said John Walsh, DataQuick president.

And on distressed sales:

Distressed sales – the combination of foreclosure resales and “short” sales – made up about half of last month’s resale market.

Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 31.1 percent of the resale market last month, down from 32.1 percent in February and down from 36.0 percent a year earlier. Last month’s figure was the lowest since foreclosure resales were 28.6 percent of the resale market in January 2008. In the current cycle, the figure hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 18.9 percent of Southland resales last month. That compares with 20.4 percent the month before and 18.5 percent a year earlier.

Distressed sales are very high at about 50% of the market, but the percentage is down from 54.5% a year ago. Cash purchasers accounted for 31.7% of all purchases (frequently investor buying).

The NAR will report March existing home sales on Thursday.

Note: I usually ignore the median prices because it is impacted by changes in the mix of homes sold.

by Calculated Risk on 4/17/2012 02:24:00 PM

There are usually two bottoms for housing, the first for new home sales, housing starts and residential investment. The second bottom is for house prices.

For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a “bottom” for housing, we need to be clear what we mean.

There is no question that housing starts and residential investment have bottomed. And it appears new home sales have also bottomed. For the housing industry, the recovery has started. The debate is about the strength of the recovery, not whether there is a recovery (I think housing will remain sluggish for some time, and I expect 2012 to be another weak year, but better than 2011).

The question about house prices is not as clear. In February I argued NSA prices for the national repeat sales indexes would probably bottom with the March reports. I still think that is correct. There is a long lag between when contracts are signed and when the repeat sales indexes are released.

There are some more timely indicators, but they are not perfect. Examples are the Trulia House Asking Price Monitor, and the John Burns Consulting Home Value Index (not public) that uses contract prices for existing homes and builder reports for new homes. Both the Trulia index and the Burns HVI are suggesting that house prices have bottomed.

Over the next few months I'll focus on house prices, but I just wanted to point out the housing industry recovery has started, and it will probably be sluggish. And for prices, if they have bottomed, they will probably mostly move sidways for some time.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing since mid-2010. Although the 12 month total for completions (red line) turned down in March, completions are generally following starts up.

It is important to emphasize 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).

This second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

In both February and March, the rolling 12 month total for starts and completions are at about the same level. This is the first this has happened since May 2006. This usually only happens at a bottom, although the recovery for single family starts will probably remain sluggish.

by Calculated Risk on 4/17/2012 12:19:00 PM

From John Gittelsohn at Bloomberg: Short Sales Surpass Foreclosures as Banks Agree to Deals (ht Mike in Long Island)

Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, data compiled by LPS show. A year earlier, 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures.

Only a few Realtor associations break out short sales, but the ones Tom Lawler has been tracking have shown a steady increase in short sales - and decrease in bank-owned sales.

From Nick Timiraos at the WSJ: Report: Sellers’ Asking Prices Rose in March

Here’s a sign that sellers are feeling more optimistic about their prospects this spring: median asking prices in March jumped by 5.6% from a year ago, and were up 1% from February, according to a report released Tuesday [by Realtor.com].

The jump in median asking prices comes amid a sharp drop in the number of homes listed for sale from one year ago. While listing inventories in March rose by 1.5% from February, they were still 21.5% below last year’s levels.

Here is the data for each city from Realtor.com: March 2012 Real Estate Data

On the national level, inventory of for-sale single family homes, condominiums, townhouses and co-ops declined by -21.48% in March 2012 compared to a year ago, and declined in one month in all but two of the 146 markets covered by Realtor.com.

The median age of the inventory fell 19.82% on a year-over-year basis last month and the median national list price was up by 5.56% last month compared to March 2011.

A 21.5% year-over-year decline in inventory would mean the NAR would report inventory at about 2.38 million for March (Lawler estimated a 20.5% decline or about 2.41 million). The NAR's inventory is always a little difficult to forecast, but this suggests around 6.2 to 6.3 months-of-supply.

The NAR is scheduled to report March existing home sales and inventory on Thursday.

by Calculated Risk on 4/17/2012 09:30:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production was unchanged in March for a second month but rose at an annual rate of 5.4 percent in the first quarter of 2012. Manufacturing output declined 0.2 percent in March but jumped 10.4 percent at an annual rate in the first quarter. The gain in manufacturing output in the first quarter was broadly based: Even excluding motor vehicles and parts, which jumped at an annual rate of nearly 40 percent, manufacturing output moved up at an annual rate of 8.3 percent and output for all but a few major industries increased 5 percent or more. In March, production at mines rose 0.2 percent and the output of utilities gained 1.5 percent. For the quarter, however, the output of utilities dropped at an annual rate of 13.8 percent, largely as a result of unseasonably warm temperatures over the past several months, while the output of mining fell 5.4 percent. At 96.6 percent of its 2007 average, total industrial production for March was 3.8 percent above its year-earlier level. The rate of capacity utilization for total industry edged down to 78.6 percent, a rate 2.1 percentage points above its level from a year earlier but 1.7 percentage points below its long-run (1972--2011) average.

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.8 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.6% is still 1.7 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production was unchanged in March at 96.6; however February was revised up from 96.2.

The consensus was for a 0.3% increase in Industrial Production in March, and for a decrease to 78.6% (from 78.7%) for Capacity Utilization. Although below consensus, with the February revisions, this was close to expectations.

All current manufacturing graphs

by Calculated Risk on 4/17/2012 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in March were at a seasonally adjusted annual rate of 654,000. This is 5.8 percent (±15.6%)* below the revised February estimate of 694,000, but is 10.3 percent (±14.6%)* above the March 2011 rate of 593,000.

Single-family housing starts in March were at a rate of 462,000; this is 0.2 percent (±12.6%)* below the revised February figure of 463,000. The March rate for units in buildings with five units or more was 178,000.

Building Permits:
Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 747,000. This is 4.5 percent (±1.1%) above the revised February rate of 715,000 and is 30.1 percent (±1.6%) above the March 2011 estimate of 574,000.

Single-family authorizations in March were at a rate of 462,000; this is 3.5 percent (±1.1%) below the revised February figure of 479,000. Authorizations of units in buildings with five units or more were at a rate of 262,000 in March.

Click on graph for larger image.

Total housing starts were at 654 thousand (SAAR) in March, down 5.8% from the revised February rate of 694 thousand (SAAR). Note that February was revised down from 698 thousand.

Single-family starts declined 0.2% to 462 thousand in March. February was revised up to 463 thousand from 457 thousand.

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

This shows the huge collapse following the housing bubble, and that total housing starts have been increasing lately after sideways for about two years and a half years.

Total starts are up 37% from the bottom, and single family starts are up 31% from the low.

This was well below expectations of 700 thousand starts in March, but mostly because of multi-family starts.

All Housing Investment and Construction Graphs