by Calculated Risk on 4/24/2014 08:08:00 PM

From Nick Timiraos at the WSJ: Demand for Home Loans Plunges

Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.
...
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.
...
The top 25 lenders accounted for 63.9% of all originations in the first quarter, also a 14-year low. That is down from 65.3% at the end of last year and a high of 90.9% in 2008, according to Inside Mortgage Finance.

Note: Many of the smaller lenders focus on the home purchase market and many of these small lenders are not included in the weekly MBA index. That is why the MBA purchase index is down about 18% year-over-year, but actual purchase activity is flat (according to Inside Mortgage Finance).

Friday:
• At 9:55 AM ET, the Reuter's/University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 82.5, down from the preliminary reading of 82.6, but up from the March reading of 80.0.

by Calculated Risk on 4/24/2014 03:29:00 PM

D.R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 8,569, up 8.8% from the comparable quarter of 2013. Horton’s average community count last quarter was up 11% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 19%, unchanged from a year ago. Home deliveries totaled 6,194 last quarter, up 13.4% from the comparable quarter, at an average sales price of $271,230, up 11.8% from a year ago. The company’s order backlog at the end of March was 10,059, up 5.3% from last March.

In response to overall weak demand from first-time home buyer, partly attributable in home price increases over the past two years, Horton announced in its conference call that is initiating a new product line called “express homes,” which will be smaller and priced lower than its current product lines and will be targeted to first-time buyers. An official said that first-time home buyers represented 42% of the purchase mortgages handled by its mortgage subsidiary last quarter, down from 50% in the comparable quarter of 2013. An official also said that the company increased sales incentives “some, but not significantly,” last quarter.

D.R. Horton’s results were stronger than consensus.

PulteGroup, the nation’s second largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 4,863, down 6.5% from the comparable quarter of 2013. While net orders were down from a year ago, the company said that absorptions per community were up from last year. (Pulte has focused more on returns and less on expansion). Home deliveries last quarter totaled 3,436, down 10.4% from the comparable quarter of 2013, at an average sales price of $317,000, up 10.5% from a year ago. The company’s order backlog at the end of March was 7,199, down 8% from last March. Company officials noted that absorption rates per community were up significantly from a year ago in its lower-priced Centex division, but that this gain mainly reflected the strong Texas market, and not strength in first-time home buyer demand.

The Ryland Group, the nation’s eighth largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 2,186, up 6.5% from the comparable quarter of 2013. Ryland’s community count in March was up 18.8% from last March, and the company’s average sales absorption rate per community last quarter was down by over 10% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 15.3%, little changed from 15.4% a year earlier. Home deliveries last quarter totaled 1,470, up 11.8% from the comparable quarter of 2013, at an average sales price of $327,000, up 18.1% from a year ago. The company’s order backlog at the end of March was 3,342, up 6.6% from last March, with an average order price of $330,000, up 14.2% from a year ago. Ryland owned or controlled 39,482 lots at the end of March, up 30.3% from last March and up 69.5% from two years ago.

M/I Homes, the nation’s 16th largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 982, down 6.2% from the comparable quarter of 2013. M/I’s average community count last quarter was 158, up 17.0% from the comparable quarter of 2013, and the company’s net sales per community last quarter were down 21% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 16% last quarter up slightly from 15% a year earlier. Home deliveries last quarter totaled 737, up 17.5% from the comparable quarter of 2013, at an average sales price of $299,000, up 5.3% from a year ago. The company’s order backlog at the end of March was 1,525, up 10.1% from last March. M/I owned or controlled 20,965 lots at the end of March, up 28.2% from a year ago.

Here is a summary of some results from large, publicly-traded builders

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	3/14	3/13	% Chg	3/14	3/13	% Chg	3/14	3/13	% Chg
D.R. Horton	8,569	7,879	8.8%	6,194	5,463	13.4%	$271,230	$242,548	11.8%
Pulte Group	4,863	5,200	-6.5%	3,436	3,833	-10.4%	$317,000	$287,000	10.5%
NVR	3,325	3,510	-5.3%	2,211	2,272	-2.7%	$361,400	$330,400	9.4%
The Ryland Group	2,186	2,052	6.5%	1,470	1,315	11.8%	$327,000	$277,000	18.1%
Meritage Homes	1,525	1,547	-1.4%	1,109	1,052	5.4%	$365,896	$314,363	16.4%
M/I Homes	982	1,047	-6.2%	737	627	17.5%	$299,000	$284,000	5.3%
Total	21,450	21,235	1.0%	15,157	14,562	4.1%	$308,445	$278,040	10.9%

by Calculated Risk on 4/24/2014 03:12:00 PM

From HotelNewsNow.com: US hotels report occupancy, RevPAR decreases

The U.S. hotel industry reported occupancy and revenue-per-available-room decreases during the week of 13-19 April 2014, according to data from STR, parent company of Hotel News Now.

Overall, in year-over-year measurements, the industry’s occupancy decreased 2.7% to 62.8%. RevPAR decreased 0.3% to $70.58. Average daily rate increased 2.5% to $112.37.
emphasis added

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The weekly decline was probably related to the timing of Easter, however the 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the highest level since 2000. 

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2014 and black is for 2009 - the worst year since the Great Depression for hotels.

Through April 19th, the 4-week average of the occupancy rate is tracking higher than pre-recession levels.   


Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 4/24/2014 11:08:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Moderated Slightly

The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity moderated slightly after rising to a two-year high in March, but producers’ expectations for future factory activity climbed higher.

“Regional factory expansion was not quite as strong in April as in March, when better weather provided a boost”, said Wilkerson. “But April’s numbers were otherwise the best in nearly two years, and firms were generally optimistic.”

The month-over-month composite index was 7 in April, down from 10 in March but up from 4 in February. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... the order backlog index moved into positive territory for the first time in four months, and the employment index rebounded after falling last month.
emphasis added

The last regional Fed manufacturing survey for April will be released on Monday, April 28th (Dallas Fed). In general the regional surveys have been positive in April and suggest further improvement in the ISM manufacturing index.

by Calculated Risk on 4/24/2014 08:37:00 AM

The DOL reports:

In the week ending April 19, the advance figure for seasonally adjusted initial claims was 329,000, an increase of 24,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 316,750, an increase of 4,750 from the previous week's unrevised average of 312,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up from 304,000.

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 316,750.

This was above the consensus forecast of 313,000.  The 4-week average is close to normal levels for an expansion.

by Calculated Risk on 4/23/2014 06:56:00 PM

Nick Timiraos at the WSJ has some excerpts from a research note by Goldman Sachs economists: Why Credit Is Key for the Housing Recovery

The Goldman economists say they expect new home sales to reach 800,000 units by 2017, up from 430,000 last year, based on traditional drivers such as job growth and household formation. But sales will only rise to around 600,000 units in 2017 if lending standards remain at their current levels.
...
Nearly 40% of new borrowers last year had credit scores above 760, compared with just 25% before the housing bubble in 2001. Meanwhile, less than 0.2% of borrowers had credit scores below 620, compared to 13% in 2001.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 313 thousand from 304 thousand.

• Also at 8:30 AM, the Durable Goods Orders for March from the Census Bureau. The consensus is for a 2.0% increase in durable goods orders.

• At 11:00 AM, the Kansas City Fed manufacturing survey for April.

by Calculated Risk on 4/23/2014 01:36:00 PM

From housing economist Tom Lawler:

Meritage Homes, the ninth largest US home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 1,525, down 1.4% from the comparable quarter of 2013. Orders were down despite a 16% YOY increase in the company’s average community count. The company’s sales cancellation rate, expressed as a % of gross orders, was 13% last quarter, up from 11% a year ago. Home closings totaled 1,109 last quarter, up 5.4% from the comparable quarter of 2013, at an average sales price of $366,000, up 16.4% from a year ago. The company’s order backlog at the end of March was 2,269, up 15.4% from last March, at an average order price of $368,400, up 8.3% from last March.

Meritage said that it owned or controlled 25,807 lots at the end of March, up 22.7% from last March and up about 50% from two years earlier.

Here are some excerpts from the company’s press release.

"The high-pitched pace of sales in our western region has slowed in recent quarters after experiencing very robust demand and significant increases in home prices since 2012," he explained. "Demand in Arizona has softened over the last several months and home prices there have moderated. On the other hand, demand in California and Colorado remains strong, though not as intense as a year ago. We continue to focus on maximizing profitability at a more normalized sales pace."

He concluded, "We remain committed to our forecast of approximately 210-220 active communities by year-end 2014 (versus 188 at year-end 2013). Based on the trends in sales pace and prices that we've experienced so far this year, we are projecting that our 2014 home closing gross margin may be relatively flat compared to 2013, due to less pricing power and higher land costs. With that in mind, we believe we will still achieve significant earnings growth in 2014, and that future years' earnings growth will be driven mainly by community count growth and operating leverage as we expand and grow our top line while managing our costs."

Click on graph for larger image in graph gallery.

CR Note: This graph from Tom Lawler shows Meritage's net home order sales price.    Part of the reason for the slight price decline is because of fewer sales in the western region (more expensive). 

Lawler: In the quarter ended March 31, 2013, Meritage’s net orders per active community were up almost 27% from the comparable quarter of 2012. In the quarter ended March 31, 2014, net orders per active community were down about 15% from the comparable quarter of 2013, with the biggest decline coming in the West (down 32.8%).

by Calculated Risk on 4/23/2014 11:23:00 AM

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

From AIA: Architecture Billings Index Mired in Slowdown

Following a modest two-month recovery in the level of demand for design services, the Architecture Billings Index (ABI) again turned negative last month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI score was 48.8, down sharply from a mark of 50.7 in February. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.9, up from the reading of 56.8 the previous month.

“This protracted softening in demand for design services is a bit of a surprise given the overall strength of the market the last year and a half,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Hopefully, some of this can be attributed to severe weather conditions over this past winter. We will have a better sense if there is a reason for more serious concern over the next couple of months.”

Regional averages: South (52.8),West (50.7), Northeast (46.8), Midwest (46.6) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.8 in March, down from 50.7 in February. Anything below 50 indicates contraction in demand for architects' services.  This index has indicated expansion during 16 of the last 20 months.

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.  Even when positive, this index was not as strong as during the '90s - or during the bubble years of 2004 through 2006 - because the vacancy rates are still high for many CRE sectors.  However, the readings over the last year and a half suggest some increase in CRE investment in 2014.

by Calculated Risk on 4/23/2014 10:00:00 AM

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 384 thousand.

February sales were revised up from 440 thousand to 449 thousand, and January sales were revised up from 455 thousand to 470 thousand.  

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 14.5 percent below the revised February rate of 449,000 and is 13.3 percent below the March 2013 estimate of 443,000.

Click on graph for larger image.


Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply increased in March to 6.0 months from 5.0 months in February.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

"The seasonally adjusted estimate of new houses for sale at the end of March was 193,000. This represents a supply of 6.0 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, but moving up. The combined total of completed and under construction is also very low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In March 2014 (red column), 36 thousand new homes were sold (NSA). Last year 41 thousand homes were also sold in March. The high for March was 127 thousand in 2005, and the low for March was 28 thousand in 2011.



This was well below expectations of 455,000 sales in March.

I'll have more later today . 

by Calculated Risk on 4/23/2014 07:01:00 AM

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

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 18, 2014. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.49 percent from 4.47 percent, with points increasing to 0.50 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 74% from the levels in May 2013 (almost one year ago).

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 18% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.