by Calculated Risk on 11/12/2013 03:22:00 PM

D.R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 5,160, down 2.2% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 31%, up from 27% a year ago. Home closings totaled 6,866 last quarter, up 23.2% from the comparable quarter of 2012, at an average sales price of $262,463, up 13.6% from a year ago. The company’s order backlog at the end of September was 8,205, up 13.3% from last September.

In its conference call, Horton officials attributed the increase in home prices both to increased pricing power and an increased “mix” of larger homes sold to trade-up buyers. Officials also said that the drop in sales orders reflected a “moderation” in demand that began in mid-May and continued through September, and attributed the drop in demand both to higher mortgage rates and higher home prices. The officials noted that the pace of orders had improved in October, and also said that home prices increases have “moderated.”

Officials also noted that its previous rapid increase in its land/lot inventory (see next page) meant that it had “sufficient inventories of homes and finished lots” to meet what it hoped to be improved demand over the next year, and that the company expected to reduce its land purchases next year.

Here are some summary stats for nine large, publicly-traded builders for the quarter ended September 30th.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg
D.R. Horton	5,160	5,276	-2.2%	6,866	5,575	23.2%	$262,453	$231,085	13.6%
Pulte Group	3,781	4,544	-16.8%	4,817	4,418	9.0%	$310,000	$279,000	11.1%
NVR	2,381	2,558	-6.9%	3,342	2,656	25.8%	$349,200	$321,700	8.5%
The Ryland Group	1,592	1,507	5.6%	1,883	1,322	42.4%	$298,000	$264,000	12.9%
Beazer Homes	1,192	1,110	7.4%	1,657	1,608	3.0%	$263,200	$228,600	15.1%
Standard Pacific	1,110	989	12.2%	1,217	861	41.3%	$420,000	$369,000	13.8%
Meritage Homes	1,300	1,204	8.0%	1,418	1,197	18.5%	$341,000	$280,000	21.8%
MDC Holdings	924	1,008	-8.3%	1,257	1,039	21.0%	$345,000	$320,647	7.6%
M/I Homes	869	757	14.8%	937	746	25.6%	$284,000	$266,000	6.8%
Total	18,309	18,953	-3.4%	23,394	19,422	20.5%	$305,805	$271,672	12.6%

As the above table indicates, while overall settlements for their builders last quarter were up 20.6% from a year ago, and average sales prices were up 12.6% YOY, net sales orders were down 3.4% YOY – the first YOY drop for this group of builders since the first quarter of 2011.

These builder results indicate that the combination of higher mortgage rates and aggressive home price increases resulted in a significant slowdown in new home sales last quarter. While the relationship between large builder results and Census estimates for new home sales is far from perfect (partly reflecting market-share changes but also reflecting methodological and timing differences), these builder results suggest that Census estimates for new SF home sales for September (re-scheduled for release, along with estimates for October, on December 4th), could be down sharply from August.

by Calculated Risk on 11/12/2013 01:10:00 PM

Several years ago I started following the Sacramento market to look for changes in the mix of houses sold (conventional, REOs, and short sales).  For a long time, not much changed. But over the last 2 years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market, although some of this is due to investor buying.  Other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In October 2013, 16.7% of all resales (single family homes) were distressed sales. This was up slightly from 16.0% last month, and down from 47.7% in October 2012.

The percentage of REOs was at 5.3%, and the percentage of short sales decreased to 11.3%. (the lowest percentage for short sales since Sacramento started tracking short sales in June 2009).

Note on Short Sales: I expect short sales will really decline next year with the expiration of Cancelled Mortgage Debt Relief provision of the Mortgage Debt Relief Act of 2007.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional sales recently (blue). 

Active Listing Inventory for single family homes increased 93.2% year-over-year in October.  This is the sixth consecutive month with a year-over-year increase in inventory - and inventory has now almost doubled from a year ago. 

Cash buyers accounted for 23.9% of all sales, up slightly from 23.6% last month (frequently investors).  This has been trending down, and it appears investors are becoming less of a factor in Sacramento.

Total sales were down 25% from October 2012, but conventional sales were up 18% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, and conventional sales increasing.

As I've noted before, we are seeing a similar pattern in other distressed areas.  This suggests what will happen in other areas: 1) Flat or declining overall existing home sales, 2) but increasing conventional sales,  3) Less investor buying, 4) more inventory, and 5) slower price increases.

by Calculated Risk on 11/12/2013 10:56:00 AM

Back in 2009, Michael C. sent me some photos of rabbits hiding in a field of steel.  The steel was intended for a construction project that was on hold. Now Michael has sent me some more photos.

The photos below are of 100 Van Ness in San Francisco, Samsung’s New Corporate HQ, the Transbay Center (Jay Paul the developer / owner for the fields of steel post is also putting a high rise on this site along with the huge office tower), and more.

Michael writes:

[In] SF and the place is on fire with 20 tower cranes across the city.  [My company sent] me to Phoenix ... and they are going like gangbusters on residential housing! Also remember the Easter bunny in the field of steel? Well the are going to start on that again ... presumably there is some demand for office space in San Diego finally.

[As to] the fields of steel from Easter a few years ago, this was the original project. Only one of the buildings got built and the steel for the three of the next 11 to be built was ordered and left on site. It can still be seen here on google maps.  ...  Looks like the bunny will be homeless by Easter.

Photo credits: Michael C.

by Calculated Risk on 11/12/2013 09:22:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic activity slightly improved in September

The Chicago Fed National Activity Index (CFNAI) increased to +0.14 in September from +0.13 in August.

The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero. September’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added

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

Click on graph for larger image.

This suggests economic activity was slightly below the historical trend in September (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

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 11/12/2013 07:31:00 AM

From the National Federation of Independent Business (NFIB): October Small Business Optimism Takes a Tumble

Fall arrived literally this month, as small-business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions. ... The stalemate in early October over funding the government ... left 68 percent of owners feeling that the current period is a bad time to expand; 37 percent of those owners identified the political climate in Washington as the culprit—a record high level.

Job Creation. Job creation was up in October. NFIB owners increased employment by an average of 0.11 workers per firm in October after September’s decline

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index decreased to 91.6 in October from 93.9 in September.  

This decline was expected due to the shutdown of the government, and optimism will probably increase again in November or December.

by Calculated Risk on 11/11/2013 08:18:00 PM

Trom the NY Times: Skeptics See Euro as Working Against European Unity

[T]he big worry lately is the specter of deflation, a doom loop of falling prices, wages and profits that, once under way, is a tailspin hard to pull out of. The fear of years of stagnation was the main impetus for the European Central Bank’s decision to reduce interest rates, over the objections of Germany, which worries that looser money will only encourage profligacy by its weaker euro neighbors.

It is not evident, though, that anything has been gained by the austerity policies that Germany long preached, which have been a drag on economic growth; government debt in the euro zone has risen sharply over the last half decade.

Perhaps worst of all, the various economic afflictions have reinforced the kind of nationalism and xenophobia that the broader European Union project was supposed to chase away.

Not only has austerity in Europe been a dismal failure, but policymakers still haven't addressed the fundamental issues in the Eurozone.

Tuesday:
• At 7:30 AM ET, the NFIB Small Business Optimism Index for October. Expect a decline in optimism.

• At 8:30 AM, the Chicago Fed National Activity Index for September. This is a composite index of other data.

by Calculated Risk on 11/11/2013 03:44:00 PM

Here is another weekly update on housing inventory ... for the fourth consecutive week, housing inventory is up year-over-year.  This suggests inventory bottomed early this year.

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for September).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

Inventory in 2013 is now above the same week in 2012 (red is 2013, blue is 2012).

We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase.

Inventory is still very low, but this increase in inventory should slow house price increases.

by Calculated Risk on 11/11/2013 01:40:00 PM

Two weeks ago I wrote: Comment: Looking for Stronger Economic Growth in 2014

Fiscal austerity probably subtracted 1.5% to 2.0% from GDP growth in 2013, and the foolish government shutdown probably subtracted a little more.

But even with contractionary fiscal policy, it looks like the US economy will grow in the 2% range this year. Ex-austerity (and ex-shutdown), we'd probably be looking at a decent year - maybe this would have been the best year since Clinton was President!

Right now it looks like 2014 will be a better than 2013 for a number of reasons:

1) The housing recovery should continue.

2) Household balance sheets are in much better shape.  See: NY Fed: Household Debt declined in Q2 as Deleveraging Continues and Fed: Household Debt Service Ratio near lowest level in 30+ years

3) State and local government austerity is over (in the aggregate) [updated link].

4) There will be less Federal austerity in 2014 (hopefully the sequester cuts will be minimized). And a government shutdown is unlikely. ...

5) And demographics are favorable going forward.

Here is some more analysis on 2014:

From Goldman Sachs economists Sven Jari Stehn and Kris Dawsey:

Looking beyond Q4, we continue to expect a meaningful acceleration of GDP growth―to 3% in 2014Q1 and 3.5% for the remainder of the year―as the economy moves over the "hump" of fiscal contraction.

From Merrill Lynch economists:

Getting the exact timing of the acceleration in growth is tough, but the case for better growth next year is strong. The economy has healed significantly since the 2008-9 crisis. In particular, the government, households, businesses and banks have gone a long way toward fixing their balance sheets, allowing them to slowly shift their focus from balance sheet repair to expansion.
...
We expect GDP growth to exceed 3% in the back half of next year as the federal fiscal drag drops from ~1.5pp in 2013 to ~0.5pp in 2014.

Right now it looks like 2014 will be a solid year.

by Calculated Risk on 11/11/2013 09:53:00 AM

Two years ago I posted a graph with projections of when payroll employment would return to pre-recession levels (see: Sluggish Growth and Payroll Employment from November 2011).

In 2011, I argued we'd continue to see sluggish growth (back in 2011 many analysts were forecasting another US recession - those forecasts were wrong).

  On the graph I posted two lines - one with payroll growth of 125,000 payroll jobs added per month (the pace in 2011), and another line with 200,000 payroll jobs per month.  The following graph is an update with reported payroll growth through October 2013.

The dashed red line is 125,000 payroll jobs added per month. The dashed blue line is 200,000 payroll jobs per month.  Both projections are from November 2011.

Click on graph for larger image.

So far the economy has tracked just below the blue line (200,000 payroll jobs per month).

Right now it appears payrolls will exceed the pre-recession peak in mid-2014.

Currently there are about 1.5 million fewer payroll jobs than before the recession started, and at the recent pace of job growth it will take about 8 months to reach the previous peak.  

Of course this doesn't include population growth and new entrants into the workforce (the workforce has continued to grow).

Note: There are 976 thousand fewer private sector payroll jobs than before the recession started. At the recent pace of private sector job growth, the private sector could be back at the pre-recession peak in the first few months of 2014.

by Calculated Risk on 11/10/2013 09:33:00 PM

Monday:
• Government offices, banks and the bond market will be closed in observance of the Veteran's Day holiday. Stock markets will be open.

Weekend:
• Schedule for Week of November 10th

• Update: Four Charts to Track Timing for QE3 Tapering

• State and local government austerity is over

The Nikkei is up about 1.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are flat and DOW futures are down slightly (fair value).

Oil prices are mostly unchanged with WTI futures at $94.63 per barrel and Brent at $105.12 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices have fallen to $3.20 per gallon.  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com