by Calculated Risk on 4/12/2019 10:04:00 AM

Following the recent bounce back in some of the housing reports, I'd like to update a couple of graphs.

For the economy, what we should be focused on are single family starts and new home sales. As I noted in Investment and Recessions "New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight."

For the bottoms and troughs for key housing activity, here is a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

RI as a percent of GDP has been sluggish recently, mostly due to softness in multi-family residential.

Also, look at the relatively low level of RI as a percent of GDP, new home sales and single family starts compared to previous peaks.   To have a significant downturn from these levels would be surprising.

The second graph shows the YoY change in New Home Sales from the Census Bureau.

Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.

Some observations:

1) When the YoY change in New Home Sales falls about 20%, usually a recession will follow. The one exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

2) It is also interesting to look at the '86/'87 and the mid '90s periods. New Home sales fell in both of these periods, although not quite 20%. As I noted in earlier posts, the mid '80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid '90s, nonresidential investment remained strong.

Although new home sales were down towards the end of 2018, the decline wasn't that large historically.  As I noted last Fall, I wasn't even on recession watch.

by Calculated Risk on 4/11/2019 05:15:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 6 April

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 31 March through 6 April 2019, according to data from STR.

In comparison with the week of 1-7 April 2018, the industry recorded the following:

• Occupancy: +0.4% to 68.7%
• Average daily rate (ADR): +1.5% to US$130.79
• Revenue per available room (RevPAR): +1.9% to US$89.90

STR analysts note that performance growth was lifted due to comparison with Easter Sunday and the days immediately following in 2018.
emphasis added

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 2019, dash light blue is 2018, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

A decent start for 2019 - close, to-date, compared to the previous 4 years.

Seasonally, the occupancy rate will mostly move sideways during the Spring travel season, and then increase during the Summer.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 4/11/2019 11:33:00 AM

Another Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was up 3.2% year-over-year (YoY) in February, this was the seventh consecutive month with a YoY increase, following over three years of YoY declines.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, and Sacramento (through March) and Phoenix, and total existing home inventory as reported by the NAR (through February).

Click on graph for larger image.

The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory was up 92% YoY in Las Vegas in March (red), the eight consecutive month with a YoY increase.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY last year as oil prices increased.  Inventory was up 17.5% year-over-year in Houston in March.

Inventory is a key for the housing market.  Right now it appears the inventory build that started last year is slowing.

Also note that inventory in Seattle was up 136% year-over-year in March (not graphed)!

by Calculated Risk on 4/11/2019 10:04:00 AM

From SacRealtor.org: Spring sales season kicks off in March

March ended with 1,320 total sales, a 30% increase from the 1,015 sales of February. Compared to the same month last year (1,395), the current figure is down 5.4%.
...
The Active Listing Inventory decreased 5.6%, dropping from 1,994 to 1,883 units. The Months of Inventory decreased 30% from 2 to 1.4 Months. This figure represents the amount of time (in months) it would take for the current rate of sales to deplete the total active listing inventory. [Note: Compared to March 2018, inventory is up 3.6%] .
...
The Median DOM (days on market) dropped for the first time since May 2018, falling from 27 to 18 from February to March. The Average DOM also decreased, dropping from 43 to 37. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.”
emphasis added

CR Note: Inventory is still low - months of inventory is at 1.4 months, probably closer to 4 months would be normal - and this is the smallest YoY increase since October 2017.

by Calculated Risk on 4/11/2019 08:35:00 AM

The DOL reported:

In the week ending April 6, the advance figure for seasonally adjusted initial claims was 196,000, a decrease of 8,000 from the previous week's revised level. This is the lowest level for initial claims since October 4, 1969 when it was 193,000. The previous week's level was revised up by 2,000 from 202,000 to 204,000. The 4-week moving average was 207,000, a decrease of 7,000 from the previous week's revised average. This is the lowest level for this average since December 6, 1969 when it was 204,500. The previous week's average was revised up by 500 from 213,500 to 214,000
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 207,000.

This was below the consensus forecast.

by Calculated Risk on 4/10/2019 08:00:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 211 thousand initial claims, up from 202 thousand the previous week.

• At 8:30 AM, The Producer Price Index for March from the BLS. The consensus is for a 0.3% increase in PPI, and a 0.2% increase in core PPI.

by Calculated Risk on 4/10/2019 04:19:00 PM

From the HAR: The Houston Housing Market Blossoms in March

Lower interest rates pushed fence-sitters into buying mode as single-family home sales rose nearly five percent in March compared to a year earlier. The strongest sales activity was recorded among homes priced between $250,000 and $500,000, followed closely by the luxury segment ($750,000 and above). Once again, renters placed strong demand on single-family and townhome/condo leases across greater Houston. Housing inventory expanded to its highest level in five months, laying fertile ground for consumers as we move further into the spring buying season.

According to the latest monthly report from the Houston Association of Realtors® (HAR), sales of single-family homes increased 4.9 percent in March, with 7,072 homes sold versus 6,740 in March of 2018. Home sales edged up slightly in February following three consecutive months of declines.
...
March sales of all property types totaled 8,475, up 3.6 compared to the same month last year. Total dollar volume for the month jumped 5.7 percent to $2.4 billion.

“Home sales are benefitting from some of the lowest interest rates in years, but we also continue to see tremendous strength in the rental segment, and with inventory growing steadily, the Houston real estate market looks solid,” said HAR Chair Shannon Cobb Evans with Heritage Texas Properties. “We are also encouraged by the Texas Workforce Commission’s latest report about a 2.4-percent increase in employment across metro Houston over the past year, which bodes well for housing.”
...
Single-family homes inventory reached a 3.9-months supply in March. That is up from 3.3 months a year earlier and marks the greatest supply of homes since October 2018. ...
emphasis added

CR Note: Total active listings increased 17.5 percent year-over-year to 41,127.

by Calculated Risk on 4/10/2019 02:05:00 PM

Note that some participants think a rate hike later this year might be appropriate.

From the Fed: Minutes of the Federal Open Market Committee, March 19-20, 2019. A few excerpts:

In their discussion of monetary policy decisions at the current meeting, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, but that information received over the intermeeting period, including recent readings on household spending and business fixed investment, pointed to slower economic growth in the early part of this year than in the fourth quarter of 2018. Despite these indications of softer first-quarter growth, participants generally expected economic activity to continue to expand, labor markets to remain strong, and inflation to remain near 2 percent. Participants also noted significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments. In light of these uncertainties as well as continued evidence of muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Several participants observed that the characterization of the Committee's approach to monetary policy as "patient" would need to be reviewed regularly as the economic outlook and uncertainties surrounding the outlook evolve. A couple of participants noted that the "patient" characterization should not be seen as limiting the Committee's options for making policy adjustments when they are deemed appropriate.

With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year. Several of these participants noted that the current target range for the federal funds rate was close to their estimates of its longer-run neutral level and foresaw economic growth continuing near its longer-run trend rate over the forecast period. Participants continued to emphasize that their decisions about the appropriate target range for the federal funds rate at coming meetings would depend on their ongoing assessments of the economic outlook, as informed by a wide range of data, as well as on how the risks to the outlook evolved. Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments. Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year.
emphasis added

by Calculated Risk on 4/10/2019 11:36:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.3% annualized rate) in March. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.4% (5.0% annualized rate) in March. The CPI less food and energy rose 0.1% (1.8% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for March here. Motor fuel increased at a 111.3% annualized rate in March.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.8%, the trimmed-mean CPI rose 2.3%, and the CPI less food and energy rose 1.8%. Core PCE is for February and increased 1.9% year-over-year.

On a monthly basis, median CPI was at 3.3% annualized, trimmed-mean CPI was at 2.8% annualized, and core CPI was at 2.0% annualized.

Using these measures, inflation was about the same in March as in February on a year-over-year basis. Overall, these measures are at or above the Fed's 2% target (Core PCE is below 2%).

by Calculated Risk on 4/10/2019 08:37:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.9 percent before seasonal adjustment.
...
The index for all items less food and energy increased 0.1 percent in March, the same increase as in February.
..
The all items index increased 1.9 percent for the 12 months ending March, a larger increase than the 1.5-percent rise for the period ending February. The index for all items less food and energy rose 2.0 percent over the last 12 months.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.