by Calculated Risk on 12/19/2017 12:45:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: 2017 Closes with Strong Commercial and Industrial Activity Suggesting Healthy Business Growth Through Third Quarter 2018

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.6 percent in December on a three-month moving average (3MMA) basis and 0.4 percent on an unadjusted basis. The CAB is up 3.7 percent compared to a year earlier. Barometer readings were revised upwards for November (0.22), October (0.39) and September (0.08) as 2017 closes on a solid note, suggesting further business activity gains through the third quarter of 2018.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production. The year-over-year increase in the CAB has slowed recently, but this still suggests further gains in industrial production in 2018.

by Calculated Risk on 12/19/2017 10:00:00 AM

Earlier: Housing Starts increased to 1.297 Million Annual Rate in November

The housing starts report released this morning showed starts were up 3.3% in November compared to October, and starts were up 12.9% year-over-year compared to November 2016.

Single family starts, at 930 thousand SAAR, were at the highest level since September 2007 (over 10 years ago).

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Click on graph for larger image.

Starts were up 12.9% in November 2017 compared to November 2016 (a fairly easy comparison), and starts are up only 3.1% year-to-date.

Note that single family starts are up 8.7% year-to-date, and the weakness (as expected) has been in multi-family starts.

My guess was starts would increase around 3% to 7% in 2017.   It looks like starts will be at the low end of that range.

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 - but has turned down recently.  Completions (red line) have lagged behind - and completions have caught up to starts (more deliveries). 

Completions lag starts by about 12 months, so completions will probably turn down in about a year.

As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

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 low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few more years of increasing single family starts and completions.

by Calculated Risk on 12/19/2017 08:43:00 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 1,297,000. This is 3.3 percent above the revised October estimate of 1,256,000 and is 12.9 percent above the November 2016 rate of 1,149,000. Single-family housing starts in November were at a rate of 930,000; this is 5.3 percent above the revised October figure of 883,000. The November rate for units in buildings with five units or more was 359,000.

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,298,000. This is 1.4 percent below the revised October rate of 1,316,000, but is 3.4 percent above the November 2016 rate of 1,255,000. Single-family authorizations in November were at a rate of 862,000; this is 1.4 percent above the revised October figure of 850,000. Authorizations of units in buildings with five units or more were at a rate of 395,000 in November.
emphasis added

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 in November compared to October.   However Multi-family starts were up year-over-year.

Multi-family is volatile month-to-month, but has been mostly moving sideways to down recently.

Single-family starts (blue) increased in November, and are up solidly year-over-year.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in November were above expectations.  Starts for September and October were revised down, combined.

I'll have more later ...

by Calculated Risk on 12/18/2017 08:19:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Rise Only Slightly Despite Weaker Market Cues

Mortgage rates bounced modestly higher today, bringing the average lender back in line with last Wednesday's levels. Bond markets (which underlie mortgage rate movement) suggested a slightly bigger bounce. We may not have seen such a bounce simply due to timing. Specifically, bonds weakened throughout the day, but few lenders adjusted rate sheets in the afternoon. As such, we could begin the day tomorrow at a bit of a disadvantage, unless bond markets improve overnight.

For several months, 4.0% has been the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios. We discuss "rates" as moving up and down during that time but in reality, the only things moving are the upfront closing costs associated with that rate. It's not uncommon for rates to be exceptionally flat heading into the end of the year, but in this case, they began flattening out in late September.
emphasis added

Tuesday:
• At 8:30 AM, Housing Starts for November. The consensus is for 1.240 million SAAR, down from the October rate of 1.290 million.

by Calculated Risk on 12/18/2017 03:57:00 PM

From housing economist Tom Lawler (same estimate, more discussion):

Based on publicly-available state and local realtor/MLS reports from across the country released through today, I predict that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.77 million in November, up 5.3% from October’s preliminary estimate and up 3.0% from last November’s seasonally adjusted pace.

On the inventory front, realtor/MLS data suggest that inventories in November were down YOY by about the same amount was the case in October. How that will translate into the NAR’s estimate is tricky, however, as the NAR’s inventory estimate for October showed a larger YOY drop that realtor/MLS data would have suggested.

Finally, realtor/MLS data suggest the the NAR’s estimate for the median existing home sales price in November will be up by about 6.4% from last November.

CR Note: Existing home sales for November are scheduled to be released Wednesday. The consensus is for sales of 5.52 million SAAR. Take the over on Wednesday!

by Calculated Risk on 12/18/2017 01:12:00 PM

A few brief comments on tax policy changes ...

There are a several policy changes that might impact housing: the reduction in the Mortgage Interest Deduction (MID), double taxation on certain income (elimination of State and Local income tax deduction), a $10,000 limit on property tax deduction and SALT, and corporate tax cuts (and other tax cuts that mostly benefit high income earners and the wealthy).

First, I think the impact of reducing the MID from a maximum of $1 million in mortgage debt to $750 thousand in mortgage debt will have very little impact on the housing market. Overall I think the MID is poor policy, and the impact on housing is overstated. The maximum has been capped at $1 million since 1986, and there has been little impact on high cost housing areas.  The impact of the reduction in the MID should be small.

The double taxation on SALT (there is a cap of a $10,000 deduction on SALT and property taxes), will have an impact on housing in some areas.  At the margin, some people might choose to live in one state over another (if they have a choice), based on taxation.  So this could impact demand in certain states - especially for the middle and upper-middle class homeowners.

On the other hand, the corporate tax cuts (and other tax cuts) will mostly benefit the wealthy, and this will be a positive for high end real estate.

Overall I think there will be some negative impact based on double taxation in some areas, but overall I think the impact of these policy changes on housing will be minimal.

by Calculated Risk on 12/18/2017 10:05:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 74 in December, up from 69 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builders Confident as Market Primed to Expand in 2018

Builder confidence in the market for newly-built single-family homes increased five points to a level of 74 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after a downwardly revised November reading. This was the highest report since July 1999, over 18 years ago.

“Housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas.

“The HMI measure of home buyer traffic rose eight points, showing that demand for housing is on the rise,” said NAHB Chief Economist Robert Dietz. “With low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year.”
...
All three HMI components registered gains in December. The component measuring buyer traffic jumped eight points to 58, the index gauging current sales conditions rose four points to 81 and the index charting sales expectations in the next six months increased three points to 79.

Looking at the three-month moving averages for regional HMI scores, the Midwest climbed six points to 69, the South rose three points to 72, the West increased two points to 79 and Northeast inched up a single point to 54.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast, and a strong reading.

by Calculated Risk on 12/17/2017 08:06:00 PM

Weekend:
• Schedule for Week of Dec 17, 2017

Monday:
• 10:00 AM ET, The December NAHB homebuilder survey. The consensus is for a reading of 70, unchanged from 70 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 9, and DOW futures are up 96 (fair value).

Oil prices were up over the last week with WTI futures at $57.35 per barrel and Brent at $63.25 per barrel.  A year ago, WTI was at $52, and Brent was at $54 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.41 per gallon. A year ago prices were at $2.25 per gallon - so gasoline prices are up 16 cents per gallon year-over-year.

by Calculated Risk on 12/17/2017 11:01:00 AM

The NAR is scheduled to report November Existing Home Sales on Wednesday, December 20th at 10:00 AM ET.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.52 million. Housing economist Tom Lawler estimates the NAR will report sales of 5.77 million on a seasonally adjusted annual rate (SAAR) basis.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for over 7 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

Over the last seven years, the consensus average miss was 142 thousand, and  Lawler's average miss was 68 thousand.

The consensus is below Lawler's estimate this month, so I'd take the over.

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	5.15	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	4.93
Dec-14	5.05	5.15	5.04
Jan-15	5.00	4.90	4.82
Feb-15	4.94	4.87	4.88
Mar-15	5.04	5.18	5.19
Apr-15	5.22	5.20	5.04
May-15	5.25	5.29	5.35
Jun-15	5.40	5.45	5.49
Jul-15	5.41	5.64	5.59
Aug-15	5.50	5.54	5.31
Sep-15	5.35	5.56	5.55
Oct-15	5.41	5.33	5.36
Nov-15	5.32	4.97	4.76
Dec-15	5.19	5.36	5.46
Jan-16	5.32	5.36	5.47
Feb-16	5.30	5.20	5.08
Mar-16	5.27	5.27	5.33
Apr-16	5.40	5.44	5.45
May-16	5.64	5.55	5.53
Jun-16	5.48	5.62	5.57
Jul-16	5.52	5.41	5.39
Aug-16	5.44	5.49	5.33
Sep-16	5.35	5.55	5.47
Oct-16	5.44	5.47	5.60
Nov-16	5.54	5.60	5.61
Dec-16	5.54	5.55	5.49
Jan-17	5.55	5.60	5.69
Feb-17	5.55	5.41	5.48
Mar-17	5.61	5.74	5.71
Apr-17	5.67	5.56	5.57
May-17	5.55	5.65	5.62
Jun-17	5.58	5.59	5.52
Jul-17	5.57	5.38	5.44
Aug-17	5.48	5.39	5.35
Sep-17	5.30	5.38	5.39
Oct-17	5.30	5.60	5.48
Nov-17	5.52	5.77	---
1NAR initially reported before revisions.

by Calculated Risk on 12/16/2017 08:13:00 AM

The key economic reports this week are November housing starts, new home sales and existing home sales.  Other key reports include the third estimate of Q3 GDP, and Personal Income & Outlays for November.

For manufacturing, the December Philly Fed and Kansas City Fed manufacturing surveys will be released this week.

----- Monday, Dec 18th -----
10:00 AM: The December NAHB homebuilder survey. The consensus is for a reading of 70, unchanged from 70 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

----- Tuesday, Dec 19th -----
8:30 AM: Housing Starts for November. The consensus is for 1.240 million SAAR, down from the October rate of 1.290 million.

This graph shows total and single unit starts since 1968.

The graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering.

----- Wednesday, Dec 20th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 5.52 million SAAR, up from 5.48 million in October.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.77 million SAAR for November.

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

----- Thursday, Dec 21st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 234 thousand initial claims, up from 225 thousand the previous week.

8:30 AM: Gross Domestic Product, 3rd quarter 2017 (Third estimate). The consensus is that real GDP increased 3.3% annualized in Q3, unchanged from 3.3% in the second report.

8:30 AM: the Philly Fed manufacturing survey for December. The consensus is for a reading of 21.8, down from 22.7.

8:30 AM ET: Chicago Fed National Activity Index for November. This is a composite index of other data.

9:00 AM ET: FHFA House Price Index for October 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

----- Friday, Dec 22nd -----
8:30 AM: Durable Goods Orders for November from the Census Bureau. The consensus is for a 2.0% increase in durable goods orders.

8:30 AM: Personal Income and Outlays for November. The consensus is for a 0.4% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM ET: New Home Sales for November from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the September sales rate.

The consensus is for 650 thousand SAAR, down from 685 thousand in October.

10:00 AM: University of Michigan's Consumer sentiment index (final for December). The consensus is for a reading of 97.0, up from the preliminary reading 96.8.

10:00 AM: State Employment and Unemployment (Monthly) for November 2017

11:00 AM: the Kansas City Fed manufacturing survey for December.