by Calculated Risk on 5/17/2012 10:11:00 AM

From the Philly Fed: May 2012 Business Outlook Survey

Firms responding to the May Business Outlook Survey indicated that manufacturing growth fell back from the pace of recent months. The survey’s broad indicators for general activity fell into negative territory for the first time in eight months. Indicators for new orders and employment also suggested slight declines from April.
...
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of 8.5 in April to -5.8 in May. The index for new orders fell four points, from 2.7 to -1.2, its first negative reading in eight months.
...
The current employment index, which had been positive for eight consecutive months, decreased 19 points, to -1.3. ... Firms also reported a slight decrease in average hours worked compared with April.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through May. The ISM and total Fed surveys are through April.

The NY and Philly Fed surveys went in opposite directions this month. The NY Fed survey showed stronger expansion; the Philly Fed survey indicated contraction. The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level this year.

by Calculated Risk on 5/17/2012 08:38:00 AM

The DOL reports:

In the week ending May 12, the advance figure for seasonally adjusted initial claims was 370,000, unchanged from the previous week's revised figure of 370,000. The 4-week moving average was 375,000, a decrease of 4,750 from the previous week's revised average of 379,750.

The previous week was revised up from 367,000 to 370,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 375,000.

The 4-week average has declined for two consecutive weeks. The average has been between 363,000 and 384,000 all year.

And here is a long term graph of weekly claims:


This was above the consensus of 365,000.

All current Employment Graphs

by Calculated Risk on 5/16/2012 09:55:00 PM

On Thursday:

• The initial weekly unemployment claims report will be released at 8:30 AM. The consensus is for claims to be essentially unchanged at 365 thousand compared to 367 thousand last week. Based on the consensus (and the usual upward revision to the previous week), the 4-week average will probably decline to below 375 thousand.

• At 10:00 AM, the Philly Fed Survey for May is scheduled for release. The consensus is for a reading of 10.0, up from 8.5 last month (above zero indicates expansion). This is the 2nd regional Fed survey for May; the NY Fed (Empire state) survey indicated faster expansion in May.

• Also at 10:00 AM, the Conference Board Leading Indicators for April will be released. The consensus is for a 0.1% increase in this index.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 07:37:00 PM

Just over two years ago we started discussing how the environment was becoming more favorable for apartment owners. This was based on several factors:

• Favorable demographics: a large cohort was moving into the low 20s to mid-30s age group. (see graph of age groups at "Rents soar")
• There were a record low number of multi-family housing units being started, meaning very few completions in 2010 and 2011.
• A large number of families were losing their homes in foreclosure, or through a short sales, and many of these families were becoming renters. (limited new supply)
• The price-to-rent ratio favored renting.

Sure enough, the vacancy rate for apartments declined sharply over the last two years, and rents have been rising.

Looking forward, the environment will be a little less favorable for apartments owners in a year or two. Demographics will still be favorable for several more years, but it appears completions might start catching up to absorption in a year or two (based on some comments and projections today from Reis director of research Victor Canalog on a webinar).

Below is an update to a 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 are also important for employment).

This 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. The 12 month total for completions (red line) is now following starts up. This suggests that completions (new supply) will increase sharply in 2013 and 2014, although this will still be below the level for the pre-bust period.

Other factors that might make the environment less favorable for apartment owners are:
• More investor buying of single family homes as rentals.
• Fewer foreclosures in 2013 and beyond.
• Wages not keeping up with rent increases.
• House prices are now back to "normal" levels in many areas based on rents. Further rent increases will start pushing more renters to buy (those that can qualify).

These are just some preliminary thoughts - right now conditions remain very favorable for apartment owners as indicated by the recent NMHC apartment survey and Reis quarterly survey.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 05:37:00 PM

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

From AIA: Architecture Billings Index Reverts to Negative Territory

After five months of positive readings, the Architecture Billings Index (ABI) has fallen into negative terrain. 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 April ABI score was 48.4, following a mark of 50.4 in March. This score reflects a decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.4, down from mark of 56.6 the previous month.

“Considering the continued volatility in the overall economy, this decline in demand for design services isn’t terribly surprising,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Also, favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in April. Anything below 50 indicates contraction 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 is just one month - and as Baker noted, this might be payback for the mild weather earlier in the year - but this suggests CRE investment will stay weak all year (it will be some time before investment in offices and malls increases).


All current Commercial Real Estate graphs

by Calculated Risk on 5/16/2012 04:27:00 PM

From Realtor.com: April 2012 Real Estate Data

On the national level, inventory of for-sale single family homes, condominiums, townhouses and co-ops declined by -18.85% in April 2012 compared to a year ago, and declined in all but five of the 146 markets covered by Realtor.com.

Realtor.com also reports that inventory was up 2.0% from the March level.

Inventory usually increases seasonally from March to April. Over the last 11 years, the average increase was close to 9% since many people typically list their homes in the spring, hoping to move during the summer months. If the NAR also reports a 2% increase, this would be the smallest increase in inventory from March to April since the year 2000.

The NAR is scheduled to report April existing home sales and inventory on Tuesday, May 22nd. Economist Tom Lawler told me he expects to have a preliminary estimate of April existing home sales tomorrow.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 02:00:00 PM

The Fed's program to "extend the average maturity of its holdings of securities" (aka Operation Twist) is schedule to end in June. Now analysts are looking for clues about the possibility of QE3.

Although there was no discussion of easing alternatives, several members indicated they'd support additional monetary policy accommodation if the economy slows. This was an increase from a "couple" members in the previous meeting.

From the Fed: Minutes of the Federal Open Market Committee, April 24-25, 2012 . Excerpt:

Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 11:19:00 AM

A few comments from Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education, and Michael Fratantoni, MBA's Vice President, Vice President of Research and Economics, on the conference call.

• All delinquency categories were down in Q1, both seasonally adjusted (SA) and NSA.

• The 30 day delinquency rate is back to normal (at the long term average). (This means a normal amount of loans are going delinquent each month)

• This was the largest quarter-to-quarter drop in delinquencies in history (there is usually a large seasonal drop in Q1, but this was larger than normal).

• The biggest problem is the number of loans in the foreclosure process. This is primarily a problem in states with a judicial foreclosure process. States like California and Arizona are now below the national average of percent of loans in the foreclosure process.

Click on graph for larger image in graph gallery.

This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission.

The top states are Florida (14.31% in foreclosure), New Jersey (8.37%), Illinois (7.46%), Nevada (the only non-judicial state in the top 10 at 6.47%), and New York (6.17%).

As Jay Brinkmann noted, California (3.29%) and Arizona (3.57%) are now below the national average and improving quickly.

The second graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent decreased to 3.13% from 3.22% in Q4. This is at about 2007 levels and around the long term average.

Delinquent loans in the 60 day bucket decreased to 1.21% in Q1, from 1.25% in Q4. This is the lowest level since Q4 2007.

There was a decrease in the 90+ day delinquent bucket too. This decreased to 3.06% from 3.11% in Q4 2011. This is the lowest level since 2008, but still way above normal (around 0.8% would be normal according to the MBA).

The percent of loans in the foreclosure process increased slightly to 4.39% from 4.38%.

A final comment: I asked about the impact of the mortgage settlement (signed on April 5th, after Q1 ended). Jay Brinkmann said that servicers might have been waiting for the settlement and that might have "built up" the in-foreclosure rate in Q1. The two key categories to watch for the impact of the settlement are the in-foreclosure and 90+ days delinquent buckets.

To reiterate: the key problem remains the very high level of seriously delinquent loans and loans in the foreclosure process.

Note: the MBA's National Delinquency Survey (NDS) covers about "42.8 million first-lien mortgages on one- to four-unit residential properties" and is "estimated to cover around 88 percent of the outstanding first-lien mortgages in the market." This gives about 5.7 million loans delinquent or in the foreclosure process.

by Calculated Risk on 5/16/2012 10:02:00 AM

The MBA reported that 11.79 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q1 2012 (delinquencies seasonally adjusted). This is down from 11.96 percent in Q4 2011 and is the lowest level since 2008.

From the MBA: Delinquencies Decline in Latest MBA Mortgage Delinquency Survey

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7.40 percent of all loans outstanding as of the end of the first quarter of 2012, a decrease of 18 basis points from the fourth quarter of 2011, and a decrease of 92 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94 percent this quarter from 8.15 percent last quarter.

The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.96 percent, down three basis points from last quarter and down 12 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.39 percent, up one basis point from the fourth quarter and 13 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.44 percent, a decrease of 29 basis points from last quarter, and a decrease of 66 basis points from the first quarter of last year.
...
“Mortgage delinquencies normally fall during the first quarter of the year, but the declines we saw were even greater than the normal seasonal adjustments would predict, so delinquencies are clearly continuing to improve. Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future. The percentage of loans three payments or more past due, the loans that represent the backlog of problems that still need to be handled, is down to the lowest level since the end of 2008. Foreclosure starts are at their lowest level since the end of 2007,” said Michael Fratantoni, MBA's Vice President of Research and Economics.
...
"The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states. While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent. In contrast, that rate has fallen to 2.8 percent in non-judicial states, the lowest since early 2009. As the foreclosure starts rate is essentially the same in both groups of states, that difference is due entirely to the systems some states have in place that effectively block timely resolution of non-performing loans and is not an indicator of the fundamental health of the housing market or the economy. In fact, hard-hit markets like Arizona that have moved through their foreclosure backlog quickly are seeing home price gains this spring."

Note: 7.40% (SA) and 4.39% equals 11.79%.

I'll have more later after the conference call this morning.

by Calculated Risk on 5/16/2012 09:33:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 1.1 percent in April. Output is now reported to have fallen 0.6 percent in March and to have moved up 0.4 percent in February; previously, industrial production was estimated to have been unchanged in both months. Manufacturing output increased 0.6 percent in April after having decreased 0.5 percent in March. Excluding motor vehicles and parts, which increased nearly 4 percent, manufacturing output moved up 0.3 percent, and output for all but a few major industries increased. Production at mines rose 1.6 percent, and the output of utilities gained 4.5 percent after unseasonably warm weather in the first quarter held down demand for heating. At 97.4 percent of its 2007 average, total industrial production for April was 5.2 percent above its year-earlier level. The rate of capacity utilization for total industry moved up to 79.2 percent, a rate 3.1 percentage points above its level from a year earlier but 1.1 percentage points below its long-run (1972--2011) average.

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 12.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 79.2% is still 1.1 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% 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 increased in April to 97.4. March was revised down (so the month-to-month increase was greater than expected), and February was revised up.

The consensus was for a 0.5% increase in Industrial Production in April, and for an increase to 79.0% (from 78.7%) for Capacity Utilization. This was above expectations.

All current manufacturing graphs