by Calculated Risk on 5/19/2020 08:31:00 PM

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

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

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

by Calculated Risk on 5/19/2020 06:07:00 PM

In late April, Dr. Fauci said the US might be able to test 400,000 to 600,000 people per day sometime in May, and  testing is now close to that range. This might be enough to allow test-and-trace in some areas.

However, the US might need more than 900,000 tests per day according to Dr. Jha of Harvard's Global Health Institute.

There were 399,479 test results reported over the last 24 hours.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 5.3% (red line). The US probably needs enough tests to keep  the percentage positive well below 5%. (probably much lower based on testing in New Zealand).

NOTE: A few states are apparently including antibody tests with virus tests. The Covid tracking project is working to straighten that out.

by Calculated Risk on 5/19/2020 02:39:00 PM

This is an important note and suggests the economy is dependent on the course of the pandemic.

Merrill Lynch economists put out a note this morning: Nordic Lessons. Here are a few brief excerpts:

One of our core views is that both voluntary and mandated social distancing have significant impacts on the economy. A new academic paper out of the University of Copenhagen and CEBI quantifies the effect of each kind of social distancing on consumer spending during the COVID-19 pandemic. ...

Let us start with the facts. The outbreak began at the end of February in Denmark and Sweden. … Since then the two countries have diverged significantly in terms of health care outcomes. As of May 18, Denmark had 95 deaths per million people, while Sweden (363 per million) has had among the highest COVID-19 mortality rates in the world.  This difference points to a large healthcare benefit from lockdown policies. What about the economic costs?

The paper finds that consumer spending dropped by 25% in Sweden and by 29% in Denmark. The 4pp difference between the two declines quantifies the cost of lockdown policies. While 4% of consumer spending is not trivial, it is a small share of the total decrease in consumer spending. Therefore the data indicate that most of the slowdown occurred due to voluntary social distancing rather than lockdown policies.
...
If the paper’s results are applicable to other countries, they have important implications for the economic outlook. … Even as restrictions are lifted, consumer spending will likely remain highly impaired, with services getting hit the hardest. Ending lockdowns might also limit the activity of more vulnerable people, further delaying the recovery.

In summary, the economic downturn has been primarily because of the virus, not the policy response.
emphasis added

by Calculated Risk on 5/19/2020 12:23:00 PM

As expected, the housing market slumped in April. There is some evidence of a pickup in activity recently, but any lasting resurgence will be dependent on the course of the pandemic. Note that April sales are for contracts typically signed in February and March.  So the report for May will probably be even worse (based on March and April contracts).

From SacRealtor.org: April 2020 Statistics – Sacramento Housing Market – Single Family Homes

April closed with 1,013 sales, down 13.4% from the 1,170 sales in March. Compared to one year ago (1,496), the current figure is a 32.3% drop.
...
The Active Listing Inventory increased 10% from March to April, from 1,658 units to 1,823 units. Compared with April 2019 (2,094), inventory is down 14.9%. The Months of Inventory increased from 1.4 to 1.8 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.
...
The Median DOM (days on market) decreased from 8 to 7 and the Average DOM decreased from 26 to 16. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.”
emphasis added

1) Overall sales decreased to 1,013 in April, down 32.3% from 1,496 in April 2019. Sales were down 13.4% from March 2020 (previous month).

2) Active inventory was at 1,823, down from 2,094 in April 2019. That is down 14.9% year-over-year.  This is the twelfth consecutive month with a YoY decline in inventory.

by Calculated Risk on 5/19/2020 10:05:00 AM

Although housing starts declined significantly, residential construction is considered essential, and starts did not decline as sharply as some other sectors.

Earlier: Housing Starts decreased to 891 Thousand Annual Rate in April

Total housing starts in April were below expectations, however revisions to prior months were positive.

The housing starts report showed starts were down 30.2% in April compared to March, and starts were down 29.7% year-over-year compared to April 2019.

Single family starts were down 24.8% year-over-year, and multi-family starts were down 40.2% 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 down 29.7% in April compared to April 2019.

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

Starts, year-to-date, are still up 3.7% compared to the same period in 2019.

Starts will be down YoY for at least the next few months due to the impact from COVID-19.

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 - then mostly moved sideways.  Completions (red line) had lagged behind - then completions caught up with starts- although starts picked up a little again lately.

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 once the crisis abates.

by Calculated Risk on 5/19/2020 09:59:00 AM

Note: Chair Powell provides an overview of the actions taken so far by the Fed.

From Fed Chair Jerome Powell: Coronavirus and CARES Act Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

The Federal Reserve's response to this extraordinary period has been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote stability of the financial system. We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response. Congress's passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was critical in enabling the Federal Reserve and the Treasury Department to establish many of the lending programs that I discuss below.

by Calculated Risk on 5/19/2020 08:39:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 891,000. This is 30.2 percent below the revised March estimate of 1,276,000 and is 29.7 percent below the April 2019 rate of 1,267,000. Single-family housing starts in April were at a rate of 650,000; this is 25.4 percent below the revised March figure of 871,000. The April rate for units in buildings with five units or more was 234,000.

Building Permits:
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,074,000. This is 20.8 percent below the revised March rate of 1,356,000 and is 19.2 percent below the April 2019 rate of 1,330,000. Single-family authorizations in April were at a rate of 669,000; this is 24.3 percent below the revised March figure of 884,000. Authorizations of units in buildings with five units or more were at a rate of 373,000 in April.
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 down in April compared to March.   Multi-family starts were down 40.2% year-over-year in April.

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

Single-family starts (blue) decreased in April, and were down 24.8% 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 April were below expectations, however starts in March were revised up.

Residential construction is considered an essential business, and held up better than some other sectors of the economy, but was still negatively impacted by COVID-19.

I'll have more later …

by Calculated Risk on 5/18/2020 07:34:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Will Have to Wait to Set More Records

Mortgage rates hit all-time lows on Friday, based on the average rate for a top tier conventional 30yr fixed loan scenario. [MND's 30 Year Fixed (daily survey) 30YR FIXED - 3.12%]
emphasis added

Tuesday:
• At 8:30 AM ET, Housing Starts for April. The consensus is for 0.950 million SAAR, down from 1.216 million SAAR in March.

• At 10:00 AM, Testimony, Fed Chair Jerome Powell, Coronavirus Aid, Relief, and Economic Security Act, Before the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senate (Watch Live Here)

by Calculated Risk on 5/18/2020 05:04:00 PM

In late April, Dr. Fauci said the US might be able to test 400,000 to 600,000 people per day, and  yesterday was the first day in that range. This might be enough to allow test-and-trace in some areas.

However, the US might need more than 900,000 tests per day according to Dr. Jha of Harvard's Global Health Institute.

There were 346,094 test results reported over the last 24 hours.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 5.7% (red line). The US probably needs enough tests to keep  the percentage positive well below 5%. (probably much lower based on testing in New Zealand).

NOTE: A few states are apparently including antibody tests with virus tests. The Covid tracking project is working to straighten that out.

by Calculated Risk on 5/18/2020 04:00:00 PM

Note: To put these numbers in perspective, the MBA notes "For the week of March 2, only 0.25% of all loans were in forbearance."

From the MBA: Share of Mortgage Loans in Forbearance Increases to 8.16%

The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 7.91% of servicers’ portfolio volume in the prior week to 8.16% as of May 10, 2020. According to MBA’s estimate, 4.1 million homeowners are now in forbearance plans.
...
“The pace of forbearance requests continued to slow in the second week of May, but the share of loans in forbearance increased,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “There has been a pronounced flattening in loans put into forbearance – despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates. However, FHA and VA borrowers are more likely to be employed in the sectors hardest hit in this crisis, which is why more than 11 percent of Ginnie Mae loans are currently in forbearance.”

According to Fratantoni, record-low mortgages rates are sustaining the refinance wave, helping homeowners lower their mortgage payments and save money during these challenging times. Furthermore, the consecutive increase in purchase applications in the last four weeks is a sign that housing demand is strengthening as more states ease restrictions on activity and people get back to work.

Added Fratantoni, “We will continue to closely monitor the forbearance request and call volume data for any sign of an uptick, but current trends suggest that if the economy continues to gradually reopen, the situation could be stabilizing.”
emphasis added

Click on graph for larger image.

This graph shows the weekly forbearance requests as a percent of servicer's portfolio volume.

The requests peaked in the week of March 30th to April 5th.

The MBA notes: "Forbearance requests as a percent of servicing portfolio volume (#) dropped across all investor types for the fifth consecutive week relative to the prior week: from 0.51% to 0.32%."