by Calculated Risk on 1/23/2015 11:56:00 AM

The most important number in the NAR report each month is inventory. This morning the NAR reported that inventory was down 0.5% year-over-year in December.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data - and December is usually the lowest month of the year for inventory.

Clearly - in many areas - inventory is still too low.

The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data.

Click on graph for larger image.

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 5.5% from the bottom. On a seasonally adjusted basis, inventory was down 2.2% in December compared to November (most of the decline reported by the NAR was seasonal).

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

And another key point: The NAR reported total sales were up 3.5% from December 2013, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed sales – foreclosures and short sales – were up slightly in December (11 percent) from November (9 percent) but are down from 14 percent a year ago. Eight percent of December sales were foreclosures and 3 percent were short sales.

Last year in December the NAR reported that 14% of sales were distressed sales.

A rough estimate: Sales in December 2013 were reported at 4.87 million SAAR with 14% distressed.  That gives 682 thousand distressed (annual rate), and 4.19 million equity / non-distressed.  In December 2014, sales were 5.04 million SAAR, with 11% distressed.  That gives 554 thousand distressed - a decline of about 19% from December 2013 - and 4.49 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 7%.. 

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in December (red column) were the highest since for December since 2006.

Earlier:
• Existing Home Sales in December: 5.04 million SAAR, Inventory down slightly Year-over-year

by Calculated Risk on 1/23/2015 10:00:00 AM

The NAR reports: Existing-Home Sales Rebound in December, 2014 Total Sales Finish 3 Percent Below 2013

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.04 million in December from a downwardly-revised 4.92 million in November. From a year ago, December sales were higher by 3.5 percent and are now above year-over-year levels for the third straight month. ...

Total housing inventory at the end of December dropped 11.1 percent to 1.85 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace – down from 5.1 months in November. Unsold inventory is now 0.5 percent lower than a year ago (1.86 million).

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in December (4.93 million SAAR) were 2.4% higher than last month, and were 3.5% above the December 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.85 million in December from 2.08 million in November.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 0.5% year-over-year in December compared to December 2013.  

Months of supply was at 4.4 months in December.

This was at expectations of sales of 5.05 million.  For existing home sales, the key number is inventory - and inventory is still low.    I'll have more later ...

by Calculated Risk on 1/23/2015 07:01:00 AM

According to Black Knight's First Look report for December, the percent of loans delinquent decreased 7% in December compared to November, and declined 13% year-over-year.

The percent of loans in the foreclosure process declined further in December and were down about 35% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.64% in December, down from 6.08% in November.  The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.61% in December from 1.63% in November.

The number of delinquent properties, but not in foreclosure, is down 375,000 properties year-over-year, and the number of properties in the foreclosure process is down 424,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for December in early February.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Dec 2014	Nov 2014	Dec 2013	Dec 2012
Delinquent	5.64%	6.08%	6.47%	7.17%
In Foreclosure	1.61%	1.63%	2.48%	3.44%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,736,000	1,925,000	1,964,000	2,031,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,132,000	1,163,000	1,280,000	1,545,000
Number of properties in foreclosure pre-sale inventory:	820,000	829,000	1,244,000	1,716,000
Total Properties	3,688,000	3,917,000	4,488,000	5,292,000

by Calculated Risk on 1/22/2015 06:10:00 PM

More on the ECB from Neil Irwin at the NY Times: Mario Draghi’s Bombshell Is Europe’s Last, Best Hope to Return to Growth

At first glance, Mr. Draghi’s plan emulates the Federal Reserve’s QE3 program: the third round of quantitative easing, or bond buying, announced in the United States in September 2012 and which most likely helped the acceleration in the American economy over the last two years. ...
...
There are two big differences.

First, it is late. When the Fed pulled the trigger on its open-ended bond buying, in 2012, annual inflation was running at 1.6 percent in the United States, not far below its 2 percent target. The economy was growing at a steady if unexceptional rate. The Fed was looking to get ahead of its problem of sluggish growth.

The European Central Bank, by contrast, has spent the last two and a half years seemingly looking for any excuse not to take the action announced Thursday ...

The second big difference with the American program is that the E.C.B. is only dabbling with risk-sharing across Europe.

The ECB is "late", but the real problem is the fiscal authorities (especially in Germany).

Friday:
• At 10:00 AM ET, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for sales of 5.05 million on seasonally adjusted annual rate (SAAR) basis. Sales in November were at a 4.93 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.15 million SAAR.

by Calculated Risk on 1/22/2015 12:58:00 PM

I think this is the quote of the day via The Daily Telegraph: ECB unveils €1.1 trillion QE program

Mr Draghi rejected any criticism that the vast expansion of the ECB's easy-money policies would stoke inflation down the road, noting that inflation has stayed very low even after several interest rate cuts and abundant ECB loans to banks.

"There must be a statute of limitations for those who say there will be inflation," Mr Draghi said.

Some policymakers have been wrong for years, both on monetary and fiscal policy ("austerity über alles").

And on the ECB's QE, from the WSJ: ECB Unveils Stimulus to Boost Economy

ECB President Mario Draghi said the ECB will buy a total of €60 billion a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds. The purchases of government bonds and those issued by European institutions will start in March and are intended to run through to September 2016, Mr. Draghi said. The risks associated with the bonds of EU institutions will be shared among eurozone central banks, but purchases of other government bonds won’t be subject to loss sharing, he said.

Mr. Draghi said bond purchases might continue beyond September 2016, and until there are clear signs that the annual rate of inflation is rising toward the central bank’s target of just below 2%.

And from the Financial Times: European Central Bank unleashes quantitative easing

Mr Draghi said the bond-buying scheme will commence in March and last until the end of September 2016, or “until we see a sustained adjustment in the path of inflation”. The €60bn monthly asset purchases include government debt, asset-backed securities and covered bonds but not corporate bonds.

This buys more time for policymakers in Germany to change their approach (I doubt they will, there is no "statute of limitations" for bad ideas).

by Calculated Risk on 1/22/2015 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Expanded at a Slower Pace

Tenth District manufacturing activity expanded at a slower pace in January, but producers’ expectations for future activity remained at solid levels. Most price indexes were lower than last month, especially for finished goods prices.

The month-over-month composite index was 3 in January, down from 8 in December and 6 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in some types of durable goods production, particularly electronics, machinery, and metal products, some of which is likely due to lower energy activity. Looking across District states, the weakest activity was in energy-dependent Oklahoma. ... the employment index posted a five-month low.
...
“We saw weaker activity in some energy sector-related manufacturing in January, and that pulled the overall index down somewhat”, said [Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City]. “But firms still reported modest overall growth in regional factory activity".

Future factory indexes continued to remain stable at mostly solid levels. The future composite index was unchanged at 19 ...
emphasis added

Two more regional Fed manufacturing surveys for January will be released this month (the Dallas and Richmond Fed surveys). It appears we are starting to see some impact from lower oil prices.

The over all impact from the decline in oil prices will be positive for the US economy, but as Tim Duy noted a couple of weeks ago about oil prices:

the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution. This will be most likely revealed in the aggregate data and be much less newsworthy.
emphasis added

by Calculated Risk on 1/22/2015 08:30:00 AM

The DOL reported:

In the week ending January 17, the advance figure for seasonally adjusted initial claims was 307,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 316,000 to 317,000. The 4-week moving average was 306,500, an increase of 6,500 from the previous week's revised average. The previous week's average was revised up by 2,000 from 298,000 to 300,000.

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

The previous week was revised up to 317,000.

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 increased to 306,500.

This was higher than the consensus forecast of 300,000, and the 4-week average has moved up lately, but the low level still suggests few layoffs.  Note: We might start seeing an increase in unemployment claims due to layoffs in oil producing states.

by Calculated Risk on 1/21/2015 07:10:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 316 thousand.

• At 9:00 AM, FHFA House Price Index for November 2014. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.3% increase.

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

And here is a repeat of a post I wrote last year: Housing: Demographics for Renting and Buying

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. (note: the beginning of this post is from an earlier post on apartment supply and demand).

The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).

The demographics are still favorable for apartments, since  a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.

Click on graph for larger image.

This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.

The circled area shows the recent and projected increase for this group.

From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.

This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

The second graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.

by Calculated Risk on 1/21/2015 04:06:00 PM

Note: LA area ports were impacted by a trucker strike in November, and there are ongoing labor negotiations (and some slowdown).

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for December since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was unchanged compared to the rolling 12 months ending in November.   Outbound traffic was down 1.0% compared to 12 months ending in November.

Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways (down a little recently).

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were unchanged year-over-year in December, exports were down 11% year-over-year.

Exports suggest a slowdown in Asia, but import traffic was decent considering the ongoing labor negotiations.  Hopefully the negotiations will be settled soon.

by Calculated Risk on 1/21/2015 12:44:00 PM

Just over a year ago, in November 2013, housing starts were at a 1.091 million pace on a seasonally adjusted annual rate (SAAR) basis. (Since revised to 1.105 million).

That end of the year surge in 2013 led many analysts to push up their forecast for 2014 (see blue column for November 2013 in the first graph below).

It ends up not one month in 2014 was above November 2013 (as revised).  This is a reminder not to be influenced too much by one month of data.

That brings us to this morning: the Census Bureau reported that single family starts were at 728 thousand in December, the highest level since early 2008.  If single family starts just hold that level in 2015, annual single family starts would be up about 12% over 2014.  With more growth, 20% would seem possible.  However I think 20% is too optimistic (based on lots and pricing), and just like in 2013, we shouldn't let one month of data influence us too much.

Click on graph for larger image.

This graph shows the month to month comparison between 2013 (blue) and 2014 (red).

There were 1.006 million total housing starts during 2014, up 8.7% from the 925 thousand in 2013.  Single family starts were up 4.9%, and multifamily starts up 17.1%.

The following table shows the annual housing starts since 2005, and the percent change from the previous year. The housing recovery slowed in 2014, especially for single family starts.  However I expect further growth in starts over the next several years.

Housing Starts (000s) and Annual Change
	Total	Total % Change	Single	Single % Change
2005	2,068.3	5.8%	1,715.8	6.5%
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%
2012	780.6	28.2%	535.3	24.3%
2013	924.9	18.5%	617.6	15.4%
2014	1,005.8	8.7%	648.0	4.9%

Below 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.

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

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).

Note that the blue line (multi-family starts) might be starting to move more sideways.

I think most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).

The 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.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.