by Calculated Risk on 2/19/2020 02:08:00 PM

From the Fed: Minutes of the Federal Open Market Committee, January 28-29, 2020. A few excerpts:

Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting, al­though a number of downside risks remained prominent. The easing of trade tensions resulting from the recent agreement with China and the passage of the USMCA as well as tentative signs of stabilization in global economic growth helped reduce downside risks and appeared to buoy business sentiment. The risk of a "hard" Brexit had appeared to recede further. In addition, statistical models designed to estimate the probability of recession using financial market data suggested that the likelihood of a recession occurring over the next year had fallen notably in recent months. Still, participants generally expected trade-related uncertainty to remain somewhat elevated, and they were mindful of the possibility that the tentative signs of stabilization in global growth could fade. Geopolitical risks, especially in connection with the Middle East, remained. The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching.
...
In their consideration of monetary policy at this meeting, participants judged that it would be appropriate to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. With regard to monetary policy beyond this meeting, participants viewed the current stance of policy as likely to remain appropriate for a time, provided that incoming information about the economy remained broadly consistent with this economic outlook. Of course, if developments emerged that led to a material reassessment of the outlook, an adjustment to the stance of monetary policy would be appropriate, in order to foster achievement of the Committee's dual-mandate objectives.

In commenting on the monetary policy outlook, participants concurred that maintaining the current stance of policy would give the Committee time for a fuller assessment of the ongoing effects on economic activity of last year's shift to a more accommodative policy stance and would also allow policymakers to accumulate further information bearing on the economic outlook. Participants discussed how maintaining the current policy stance for a time could be helpful in supporting U.S. economic activity and employment in the face of global developments that have been weighing on spending decisions.
emphasis added

by Calculated Risk on 2/19/2020 12:31:00 PM

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

From the AIA: Architecture billings continue growth into 2020

Starting the year on a strong note, architecture firm billings strengthened slightly in January, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score of 52.2 for January compared to 52.1 in December reflects an increase in design services provided by U.S. architecture firms (any score above 50 indicates an increase in billings). Indicators of work in the pipeline, including new project inquiries and new design contracts remained positive, posting scores of 57.9 and 56.0 respectively.

“Despite the continued presence of volatility in the economy, design activity has begun to accelerate in recent months,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Even with the ongoing challenges facing the nonresidential construction sector, this upturn points to at least modest growth over the coming year.”
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• Regional averages: South (56.7); West (52.1); Midwest (51.3); Northeast (45.3)

• Sector index breakdown: mixed practice (51.6); commercial/industrial (51.5); multi-family residential (51.2); institutional (51.1)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 52.2 in January, up from 52.1 in December. Anything above 50 indicates expansion in demand for architects' services.

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.  This index has been positive for 8 of the previous 12 months, suggesting some increase in CRE investment in 2020.

by Calculated Risk on 2/19/2020 11:00:00 AM

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.42 million in January, down 2.2% from December’s preliminary pace (which looks too high) and up 9.9% from last January’s seasonally adjusted pace.

On the inventory front, local realtor/MLS data, as well as data from other inventory trackers, suggest that the inventory of existing homes for sale at the end of January was down by about 12.0% from a year earlier.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 7.0% from last January.

Note that this month’s release will incorporate benchmark seasonal adjustment revisions, which makes it a little tricky to estimate January’s seasonal adjustment factor.

Last month the National Association of Realtors estimated that existing home sales ran at a seasonally adjusted annual rate of 5.54 million, well above consensus estimates and, surprisingly, well above my estimate based on local realtor/MLS reports released before the NAR report. In looking at realtor/MLS reports released later than those available when I do my “early read,” it does appear as if my earlier sample did not reflect overall national sales. However, it also appears as if the NAR’s estimate overstated sales in the Midwest and the Northeast. If I had had access to all realtor/MLS reports for December sales I would have projected that existing home sales as estimated by the NAR ran at a seasonally adjusted annual rate of 5.50 million.

CR Note: The National Association of Realtors (NAR) is scheduled to release January existing home sales on Friday, February 21, 2020 at 10:00 AM ET. The consensus is for 5.45 million SAAR.

by Calculated Risk on 2/19/2020 09:14:00 AM

Earlier: Housing Starts decreased to 1.567 Million Annual Rate in January

Total housing starts in January were well above expectations and revisions to prior months were positive.

The housing starts report showed starts were down 3.6% in January compared to December, and starts were up 21.4% year-over-year compared to January 2019.

These were blow out numbers!   Starts in December were at the highest level for starts since December 2006 (end of the bubble).  However, the weather was very nice again in January (just like in December), and the weather probably had a significant impact on the seasonally adjusted housing starts number. The winter months of December and January have the largest seasonal factors, so nice weather can really have an impact.

Single family starts were up 4.6% year-over-year, and multi-family starts were up 71.3% YoY.

This first graph shows the month to month comparison for total starts between 2019 (blue) and 2020 (red).

Click on graph for larger image.

Starts were up 21.4% in January compared to January 2019.

For the year, starts were up 3.2% compared to 2018.

Last year, in 2019, starts picked up in the 2nd half of the year, so the comparisons are easy early in the year.

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 for several years following the great recession - but turned down, and has moved sideways recently.  Completions (red line) had lagged behind - then completions caught up with starts- although starts are picking up a little again.

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 relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions.

by Calculated Risk on 2/19/2020 08:37:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in January were at a seasonally adjusted annual rate of 1,567,000. This is 3.6 percent below the revised December estimate of 1,626,000, but is 21.4 percent above the January 2019 rate of 1,291,000. Single‐family housing starts in January were at a rate of 1,010,000; this is 5.9 percent below the revised December figure of 1,073,000. The January rate for units in buildings with five units or more was 547,000.

Building Permits:
Privately‐owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,551,000. This is 9.2 percent above the revised December rate of 1,420,000 and is 17.9 percent above the January 2019 rate of 1,316,000. Single‐family authorizations in January were at a rate of 987,000; this is 6.4 percent above the revised December figure of 928,000. Authorizations of units in buildings with five units or more were at a rate of 522,000 in January.
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) were up in January compared to December.   Multi-family starts were up 71.3% year-over-year in January.

Multi-family is volatile month-to-month, and  had been mostly moving sideways the last several years.

Single-family starts (blue) decreased in January, and were up 4.6% 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 eventual recovery (but still historically low).

Total housing starts in January were well above expectations and revisions were positive.

I'll have more later …

by Calculated Risk on 2/19/2020 07:00:00 AM

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

Mortgage applications decreased 6.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 14, 2020.

... The Refinance Index decreased 8 percent from the previous week and was 165 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 10 percent higher than the same week one year ago.
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“Treasury yields moved slightly higher last week, despite uncertainty surrounding the economic impact from the spread of the coronavirus. The 30-year fixed mortgage increased five basis points to 3.77 percent as a result, causing refinance applications – driven by a 11 percent drop in applications for conventional refinances – to fall,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Even with an 8 percent decline, the refinance index was still at its third highest reading so far this year. Government refinance activity, which tends to lag movements in the conventional market, bucked the overall trend, as VA loan refinances jumped 23 percent.”

Added Kan, “Purchase applications fell 3 percent last week, as there continues to be some pullback after a strong January. Activity was still 10 percent higher than a year ago, but too few options – especially at the lower portion of the market – are slowing some would-be buyers.”
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.77 percent from 3.72 percent, with points remaining unchanged at 0.28 (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 since 1990.

With lower rates, we saw a sharp increase in refinance activity, but mortgage rates would have to decline further to see a 2012 size refinance boom.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 10% year-over-year.

by Calculated Risk on 2/18/2020 06:49:00 PM

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

• At 8:30 AM, Housing Starts for January. The consensus is for 1.415 million SAAR, down from 1.608 million SAAR.

• Also at 8:30 AM, The Producer Price Index for December from the BLS. The consensus is for a 0.1% increase in PPI, and a 0.1% increase in core PPI.

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

• At 2:00 PM, FOMC Minutes, Meeting of January 28-29, 2020

by Calculated Risk on 2/18/2020 02:11:00 PM

With the ten year yield at 1.55%, and based on an historical relationship, 30-year rates should currently be around 3.5%.

Mortgage News Daily reports that the most prevalent 30 year fixed rate is now at 3.46% for top tier scenarios.

The graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Currently the 10 year Treasury yield is at 1.55%, and 30 year mortgage rates were at 3.46% according to the Freddie Mac survey last week - about as expected.

The record low in the Freddie Mac survey was 3.31% in November 2012 (Survey started in 1971).

To fall to 3.31% on the Freddie Mac survey, and based on the historical relationship, the Ten Year yield would have to fall to around 1.4% (but there is some variability in the relationship).

by Calculated Risk on 2/18/2020 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 74, down from 75 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Remains Solid in February

Builder confidence in the market for newly-built single-family homes edged one point lower to 74 in February, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. The last three monthly readings mark the highest sentiment levels since December 2017.

“Steady job growth, rising wages and low interest rates are fueling demand but builders are still grappling with increasing construction and development costs,” said NAHB Chairman Dean Mon.

“At a time when demand is on the rise, regulatory constraints along with a shortage of construction workers and a dearth of lots are hindering the production of affordable housing in local communities across the nation,” said NAHB Chief Economist Robert Dietz. “And while lower mortgage rates have improved housing affordability in recent months, accelerating price growth due to limited inventory may offset some of that effect.”
...
The HMI index gauging current sales conditions fell one point to 80, the component measuring sales expectations in the next six months was one point lower at 79 and the gauge charting traffic of prospective buyers also decreased one point to 57.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 63, the Midwest increased one point to 67 and the South moved two points higher to 78. The West fell one point to 83.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was slightly below the consensus forecast, but still another very strong reading.

by Calculated Risk on 2/18/2020 08:56:00 AM

From the NY Fed: Empire State Manufacturing Survey

Business activity picked up in New York State, according to firms responding to the February 2020 Empire State Manufacturing Survey. The headline general business conditions index moved up eight points to 12.9. The new orders index shot up 16 points to 22.1, and the shipments index climbed to 18.9.
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The index for number of employees edged down to 6.6, indicating that employment grew to a small degree. The average workweek held near zero, a sign that the average workweek was little changed.
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Indexes assessing the six-month outlook suggested that optimism about future conditions was somewhat restrained.
emphasis added

This was higher than the consensus forecast.