by Calculated Risk on 12/19/2012 12:15:00 PM

Zillow Forecast: October Case-Shiller Composite-20 Expected to Show 4.1% Increase from One Year Ago

On Wednesday December 26th, the Case-Shiller Composite Home Price Indices for October will be released. Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) will be up by 4.1 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will be up 3.1 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from September to October will be 0.3 percent for the 20-City Composite and 0.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below and are based on a model incorporating the previous data points of the Case-Shiller series, the October Zillow Home Value Index data and national foreclosure re-sales.

As we had previously discussed, monthly appreciation has slowed and will eventually turn negative in the last months of 2012. This slowdown is in large part due to Case-Shiller’s mix of distressed and non-distressed properties in the same index, as they include foreclosure re-sales. As the market slows down a bit and fewer homes are listed, foreclosure re-sales will make up a larger part of the transactional mix and will therefore skew the Case-Shiller Indices to be more negative. Despite this slowdown, home values are still higher this year than they were at this same time last year.

Zillow's forecasts for Case-Shiller have been pretty close.  Right now it looks like Case-Shiller will be up close to 6% for 2013 (through the December / Q4 reports to be released next year).

		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Oct 2011	153.54	151.55	140.05	138.21
Case-Shiller (last month)	Sept 2012	158.93	155.63	146.22	143.15
Zillow Oct Forecast	YoY	3.1%	3.1%	4.1%	4.1%
	MoM	-0.4%	0.1%	-0.3%	0.3%
Zillow Forecasts1		158.3	156.0	145.8	143.7
Current Post Bubble Low		146.46	149.39	134.07	136.66
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		8.1%	4.4%	8.7%	5.2%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 12/19/2012 10:25:00 AM

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

From AIA: Architecture Billings Index Signaling Gains for Fourth Straight Month

Billings at architecture firms across the country continue to increase. As a leading economic indicator of construction activity, the Architecture Billings Index (ABI) reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 53.2, up from the mark of 52.8 in October. 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 59.6, up slightly from the 59.4 mark of the previous month.

“These are the strongest business conditions we have seen since the end of 2007 before the construction market collapse,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “The real question now is if the federal budget situation gets cleared up which will likely lead to the green lighting of numerous projects currently on hold. If we do end up going off the ‘fiscal cliff’ then we can expect a significant setback for the entire design and construction industry.”

• Regional averages: Northeast (56.3), Midwest (54.4), South (51.1), West (49.6)

• Sector index breakdown: multi-family residential (55.9), mixed practice (53.9), commercial / industrial (52.0), institutional (50.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.2 in November, up from 52.8 in October. Anything above 50 indicates expansion in demand for architects' services.

This increase is mostly being driven by demand for design of multi-family residential buildings, but every building sector is now expanding. New project inquiries are also increasing. 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 suggests some increase in CRE investment next year.

by Calculated Risk on 12/19/2012 08:44:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 861,000. This is 3.0 percent below the revised October estimate of 888,000, but is 21.6 percent (±12.5%) above the November 2011 rate of 708,000.

Single-family housing starts in November were at a rate of 565,000; this is 4.1 percent below the revised October figure of 589,000. The November rate for units in buildings with five units or more was 285,000.

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 899,000. This is 3.6 percent above the revised October rate of 868,000 and is 26.8 percent above the November 2011 estimate of 709,000.

Single-family authorizations in November were at a rate of 565,000; this is 0.2 percent below the revised October figure of 566,000. Authorizations of units in buildings with five units or more were at a rate of 307,000 in November.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased slightly from October.

Single-family starts (blue) decreased to 565,000 thousand in November.

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 moving sideways for about two years and a half years.

Total housing starts were at 861 thousand (SAAR) in November, down 3.0% from the revised October rate of 888 thousand (SAAR).

Total starts are up about 80% from the bottom start rate, and single family starts are up about 60% from the low.

This was slightly below expectations of 865 thousand starts in November. Starts in November were up 21.6% from November 2011, and right now starts are on pace to be up about 25% from 2011. I'll have more soon ...

All Housing Investment and Construction Graphs

by Calculated Risk on 12/19/2012 07:01:00 AM

From the MBA: Refinance Applications Fall to Lowest Level in Over a Month in Latest MBA Weekly Survey

The Refinance Index decreased 14 percent from the previous week to the lowest level since week ending November 2, 2012. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. ...

“Despite the Federal Reserve’s announcement last week that it would purchase an additional $45 billion in Treasury securities per month as part of its continuing quantitative easing effort, rates increased in the second half of the week,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “As a result, refinance applications dropped sharply to the lowest level in over a month.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.50 percent from 3.47 percent, with points increasing to 0.44 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index.

Although the purchase index declined 5% this week, the 4-week average is up about 25% from the post-bubble low.

by Calculated Risk on 12/18/2012 08:16:00 PM

The following table shows annual starts (total and single family) since 2005, an estimate for 2012, and a 2013 "consensus" based on several forecasts.  I expect another solid growth year for housing starts in 2013 (with the usual Congressional caveats).

Note: from 1959 through 2000, housing starts average 1.5 million per year. The forecasts for 2013 would still be the sixth lowest year since 1959, with only 2008 through 2012 lower.

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
20121	770.0	26%	530.0	23%
20132	960.0	25%	660.0	25%
12012 estimated. 2early 2013 consensus based on several forecasts

Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

• At 8:30 AM, Housing Starts for November will be released. The consensus is for total housing starts to decline to 865,000 Seasonally Adjusted Annual Rate (SAAR) in November, down from 894,000 in October. Note: In November 2011, housing starts were above 700,000 (SAAR) for the first time in several years - it was considered a blow out month. Now expectations are for starts to be up more than 20% from that level.

• During the day: The AIA's Architecture Billings Index for November (a leading indicator for commercial real estate).


Another question for the December economic prediction contest (Note: You can use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 12/18/2012 03:10:00 PM

From Realtor.com: November 2012 Real Estate Data

Flat list prices—a leading indicator of future house price trends—most likely signal a slowdown in the recent rate of house price appreciation. At the same time, historically low inventories suggest that significant price concessions on the part of home sellers may be coming to an end. How these potentially offsetting trends play out in the housing market will depend on a variety of factors, including potential buyers’ optimism regarding the continued strength of the overall economy.

The total U.S. for-sale inventory of single family homes, condos, townhomes and co-ops (SFH/CTHCOPS) dropped to its lowest point since 2007, with 1.674 million units for sale in November, down 16.87 percent compared to a year ago and more than 45 percent below its peak of 3.1 million units in September 2007, when Realtor.com began monitoring these markets. The median age of the inventory was also down by 11.4 percent on a year-over-year basis. However, the median list price in November ($189,900) was the same as it was a year ago despite the significant gains observed earlier in the year.
...
The national for-sale inventory of SFH/CTHCOPS in November (1,674,412) decreased (4.69 percent) from what it was in October and was down by 16.87 percent on an annual basis.

Note: Realtor.com only started tracking inventory in September 2007, but this is probably the lowest level in a decade.  On a month-over-month basis, inventory declined 4.7%, and declined in 133 of 146 markets.

Going forward, I expect to see smaller year-over-year declines simply because inventory is already very low.

The NAR is scheduled to report November existing home sales and inventory on Thursday, December 20th. A key number in the NAR report will be inventory, and inventory will be down sharply again year-over-year in November.

by Calculated Risk on 12/18/2012 01:37:00 PM

I try to ignore the fiscal cliff, but I do read the Wonkblog daily for updates.

From Suzy Khimm at the Wonkblog: Five sticking points in the fiscal cliff deal

President Obama’s latest fiscal cliff offer has brought the outlines of a final deal into focus. But there are still some major sticking points and outstanding questions that have to be resolved before a final deal will be able to pass Congress.

Here are the five issues Khimm identifies:

1) Will low-income seniors be protected from Social Security cuts? If so, how?
...
2) Will House Republicans go along with tax hikes?
...
3) How much short-term stimulus will survive in a final deal?
...
4) What kind of enforcement mechanism will be attached to the health-care cuts?
...
5) How will the debt ceiling be resolved?

And on the AMT from Mark Koba at CNBC: Will 'Fiscal Cliff' Deal Include Cap on the AMT?

President Barack Obama's latest proposal in the "Fiscal Cliff" talks includes an offer to permanently cap the Alternative Minimum Tax ... Right now, some 29 million more Americans—in addition to the current 4 million—could be subject to the AMT in their 2012 returns if no agreement is reached on the fiscal cliff. ... That's because the AMT has never been indexed to inflation, so every year more Americans are caught up in it. Congress has traditionally created patches in years past to keep the AMT from clobbering more taxpayers, but so far no patch has been put up for a vote for tax year 2012.

Finding a permanent fix to the AMT would be a small positive step.

by Calculated Risk on 12/18/2012 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) increased 2 points in December to 47. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Continues Improving in December

Builder confidence in the market for newly built, single-family homes rose for an eighth consecutive month in December to a level of 47 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This marked a two-point gain from a slightly revised November reading, and the highest level the index has attained since April of 2006.
...
“While there is still much room for improvement, the consistent upward trend in builder confidence over the past year is indicative of the gradual recovery that has been taking place in housing markets nationwide and that we expect to continue in 2013,” noted NAHB Chief Economist David Crowe.
...
Two of the HMI’s three component indexes are now above the critical midpoint of 50. The component gauging current sales expectations rose two points to 51 in December, while the component gauging sales expectations in the next six months slipped one point, to 51. The component measuring traffic of prospective buyers increased one point, to 36.

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the December release for the HMI and the October data for starts (November housing starts will be released tomorrow). This was at the consensus estimate of a reading of 47.

Housing Investment and Construction Graphs

by Calculated Risk on 12/18/2012 08:56:00 AM

Inventory declines every year in December and January as potential sellers take their homes off the market for the holidays. That is why it helps to look at the year-over-year change in inventory.

According to the deptofnumbers.com for (54 metro areas), overall inventory is down 23.9% year-over-year and probably at the lowest level since the early '00s.

This graph shows the NAR estimate of existing home inventory through October (left axis) and the HousingTracker data for the 54 metro areas through mid-December.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory last year, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms in December and January and then increases through the summer. So inventory will probably decline a little further over the next month before increasing again next year.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the mid-December listings, for the 54 metro areas, declined 23.9% from the same period last year.

My guess is inventory will bottom in January (both seasonally and for the current cycle). I think the recent increase in prices will entice a few more people to list their homes (some people will no longer have negative equity too and can finally sell). Also there may be a few more foreclosure listings in some judicial states.

Nick Timiraos at the WSJ writes: 2013: How Rising Prices Could Boost Housing Demand

Rising prices could eventually encourage more sellers to put their homes on the market, which would help boost demand even further. Glenn Kelman, chief executive of Redfin, says he is looking to increase the company’s workforce of 400 agents nationally by 50% by the end of January. “I’m going across the country meeting with managers, and the only topic we’re talking about is hiring,” he said.

At the least the year-over-year declines should still start to get smaller since inventory is already very low. It seems very unlikely we will see 20%+ year-over-year declines next summer!

by Calculated Risk on 12/17/2012 10:09:00 PM

Two more articles on the possible "fiscal cliff" deal:

From the NY Times: President Delivers a New Offer on the Fiscal Crisis to Boehner

The White House plan would permanently extend Bush-era tax cuts on incomes below $400,000, essentially meaning that only the top tax bracket, 35 percent, would rise to 39.6 percent.

The president’s plan would cut spending by $1.22 trillion over 10 years, an official said, $800 billion of it in programmatic cuts, and $122 billion by adopting a new measure of inflation that slows the growth of government benefits, especially Social Security.

From the WSJ: White House Revises Offer on Tax Rates in Deficit Talks

In President Barack Obama's latest budget proposal, the White House said it now would seek to raise tax rates on income above $400,000, a person familiar with the talks said. ...

In total, the plan would include $1.22 trillion in spending reductions, with $400 billion coming from changes to health-care programs, $200 billion from cuts to other mandatory spending programs, $100 billion in cuts coming from defense spending and another $100 billion coming from nondefense discretionary spending.

Tuesday economic releases:
• At 10:00 AM ET, The December NAHB Housing Market Index (HMI) survey will be released. The consensus is for a reading of 47, up from 46 in November. Although this index has been increasing sharply, any number below 50 still indicates that more builders view sales conditions as poor than good.