by Calculated Risk on 8/19/2020 12:27:00 PM

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

From the AIA: July architectural billings remained stalled

Architectural billings failed to show any progress during July, and business conditions continued to be soft at firms, according to a new report from the American Institute of Architects (AIA).

The pace of decline during July remained at about the same level as in June with both months posting an ABI score of 40.0 (any score below 50 indicates a decline in firm billings). While firms reported a modest decline for inquiries into new projects—slipping from 49.3 in June to 49.1 in July— newly signed design contracts declined more critically, falling from a June level of 44.0 to 41.7 in July.

“It’s clear the pandemic continued to contribute to uncertainty in business conditions, especially as cases spiked in states across the country,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “While clients expressed interest in exploring new projects, many are hesitant to sign onto new contracts with the exception of the multifamily residential sector, which came close to seeing billings growth in July.”
...
• Regional averages: West (40.9); South (40.7); Midwest (40.1); Northeast (36.8)

• Sector index breakdown: multi-family residential (47.5); mixed practice (44.0); institutional (39.5); commercial/industrial (35.4)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 40.0 in July, unchanged from 40.0 in June.. Anything below 50 indicates contraction 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.

This index has been below 50 for five consecutive months.  This represents a significant decrease in design services, and suggests a decline in CRE investment in the first half of 2021 (This usually leads CRE investment by 9 to 12 months).

This weakness is not surprising since certain segments of CRE are struggling, especially offices and retail.

by Calculated Risk on 8/19/2020 10:36:00 AM

Note: This is mostly before the sharp decline in employment due to COVID.

The BLS released the preliminary annual benchmark revision showing 173,000 fewer payroll jobs as of March 2020. The final revision will be published when the January 2021 employment report is released in February 2021. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:

In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2021 with the publication of the January 2021 Employment Situation news release.

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus two-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2020 total nonfarm employment of -173,000 (-0.1 percent).
emphasis added

Using the preliminary benchmark estimate, this means that payroll employment in March 2020 was 173,000 lower than originally estimated. In February 2021, the payroll numbers will be revised down to reflect the final estimate. The number is then "wedged back" to the previous revision (March 2019).

Construction was revised up by 6,000 jobs, and manufacturing revised down by 70,000 jobs.

This preliminary estimate showed 229,000 fewer private sector jobs, and 56,000 more government jobs (as of March 2020).

by Calculated Risk on 8/19/2020 10:09:00 AM

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales were at 10,303 in July, up from 9,508 in June, and up from 9,192 in July 2019. Sales were up 8.4% from June 2020 (last month), and up 12.1% from July 2019.

2) Active inventory was at 8,010, down from 13,737 in July 2019. That is down 42% year-over-year.

3) Months of supply decreased to 1.26 in July, down from 1.51 in June. This is very low.

Sales are reported at the close of escrow, so these sales were mostly signed in May and June. As expected, sales rebounded further in July.

by Calculated Risk on 8/19/2020 07:00:00 AM

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

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 14, 2020.

... The Refinance Index decreased 5 percent from the previous week and was 38 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 27 percent higher than the same week one year ago.

“Positive economic data reported last week on retail sales, as well as a large U.S. Treasury auction, drove mortgage rates to their highest level in two weeks. The rise in rates dampened refinance activity, but purchase applications continued their strong run and were 27 percent higher than a year ago – the third straight month of year-over-year increases,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Conventional purchase applications drove last week’s increase, while applications for government loans decreased. The housing market remains a bright spot in the current economic recovery and these results, combined with July data on housing starts and homebuilder optimism, suggest that housing supply could be increasing to better meet the strong demand for buying a home.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.13 percent from 3.06 percent, with points increasing to 0.36 from 0.33 (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.

The refinance index has been very volatile recently depending on rates and liquidity.

But with record low rates, the index is up significantly from last year.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 27% year-over-year.

Note: Red is a four-week average (blue is weekly).

by Calculated Risk on 8/18/2020 08:49:00 PM

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

• At 10:00 AM, the Bureau of Labor Statistics (BLS) will release the preliminary estimate of the upcoming annual benchmark revision.

• Also at 10:00 AM, Advance Services Report, Second Quarter 2020

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

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

by Calculated Risk on 8/18/2020 06:04:00 PM

The US is now mostly reporting over 700,000 tests per day. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 642,814 test results reported over the last 24 hours.

There were 40,458 positive tests.

There have been 18,184 COVID deaths in the first 18 days of August. See the graph on US Daily Deaths here.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 6.3% (red line).

For the status of contact tracing by state, check out testandtrace.com.

And check out COVID Exit Strategy to see how each state is doing.

by Calculated Risk on 8/18/2020 04:21:00 PM

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 5.85 million in July, up 23.9% from June’s preliminary pace and up 8.5% from last July’s seasonally adjusted pace.

Local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 8.4% from last July, a sharp YOY acceleration from June.

While not all realtor reports include data on new pending sales – and some that do often revise those data significantly – the limited data available suggest that the YOY increase in pending sales again exceeded the YOY gain in closed sales last month.

Projecting the NAR’s inventory estimate for July is tricky. Local realtor/MLS reports suggest that the “inventory” of homes for sale last month was down by about 30% nationwide in July. However, those same local reports for June would have suggested a much sharply YOY drop in inventories than the NAR reported.

Most of these local realtor/MLS reports utilize third-party software, and most exclude all pending contracts from the inventory number. These reports also differ from the reports sent to the NAR, and it is my understanding is that not all local realtors/MLS exclude all pending contracts from the inventory number in the NAR report.
...
The data do suggest, however, that the YOY decline in inventories in July was larger than it was in June.

Here are a few more observations: First, for local realtor/MLS reports which break sales out by type, single-family detached home sales continued to show stronger growth than condo/coop sales, and inventories of SFD homes were down MUCH more sharply YOY than condo/coop inventories (in fact, in some reports SFD inventories were down sharply while condo/coop sales were up a bit.

Second, home sales in counties with beach resorts were up extremely sharply from a year ago, at least on the East Coast.

Finally, I have heard anecdotally that “many” urban dwellers have been buying SFD homes in the suburbs without (at least yet) listing their urban property.

CR Note: The National Association of Realtors (NAR) is scheduled to release July existing home sales on Friday, August 21, 2020 at 10:00 AM ET. The consensus is for 5.39 million SAAR.

by Calculated Risk on 8/18/2020 11:22:00 AM

The Census Bureau released an update today on 2020 Census Paid Temporary Workers

As of the July reference week, there were 50,404 decennial Census temporary workers. As of week of August 2nd through August 8th, there were 270,468 temp workers.

That was an increase of around 220,000. Last week was the BLS reference week, and it seems likely another 100,000 or more temporary workers were on the payroll last week (to be released next week).

This means the August employment report will show a sharp increase in Federal employment. Since these are temporary, and only happen every ten years with the decennial Census, it makes sense to adjust the headline monthly Current Employment Statistics (CES) by Census hiring to determine the underlying employment trend.

The correct adjustment method is to take the headline number and subtract the change in the number of Census 2020 temporary and intermittent workers. For more, see: How to Report the Monthly Employment Number excluding Temporary Census Hiring

by Calculated Risk on 8/18/2020 09:28:00 AM

As expected, housing starts increased further in July, and were up solidly year-over-year, but are still below the pre-recession level.

Earlier: Housing Starts increased to 1.496 Million Annual Rate in July

Total housing starts in July were above expectations, and revisions to prior months were positive.

Low mortgage rates and limited existing home inventory is giving a boost to housing starts.

The housing starts report showed starts were up 22.6% in July compared to June, and starts were up 23.4% year-over-year compared to July 2019 (easy comparison).

Single family starts were up 7.4% year-over-year.

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 22.6% in July compared to July 2019.

Last year, in 2019, starts picked up towards the end of the year, so the comparisons were easy in the first seven months of the year..

Starts, year-to-date, are up 4.7% compared to the same period in 2019. This is below my forecast for 2020, but I didn't expect a pandemic!

I expect a further increase in starts in August, but the growth rate will slow.

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 8/18/2020 08:37:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,496,000. This is 22.6 percent above the revised June estimate of 1,220,000 and is 23.4 percent above the July 2019 rate of 1,212,000. Single-family housing starts in July were at a rate of 940,000; this is 8.2 percent above the revised June figure of 869,000. The July rate for units in buildings with five units or more was 547,000.

Building Permits:
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,495,000. This is 18.8 percent above the revised June rate of 1,258,000 and is 9.4 percent (±1.5 percent) above the July 2019 rate of 1,366,000. Single-family authorizations in July were at a rate of 983,000; this is 17.0 percent above the revised June figure of 840,000. Authorizations of units in buildings with five units or more were at a rate of 467,000 in July.
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 July compared to June.   Multi-family starts were up solidly year-over-year in July.

Single-family starts (blue) increased in July, and were up 7.4% 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 July were above expectations, and starts in May and June were revised up.

I'll have more later …