by Calculated Risk on 12/20/2020 01:10:00 PM

Last week I posted some 2021 housing forecasts. I noted:

There are a wide range of estimates, especially on house prices in 2021, with price forecasts ranging from increases of 2% to 10%. These forecasts use different measures, but that is a very wide spread.

The key in 2021 will be inventory. If inventory stays extremely low, there will be more housing starts and a larger increase in prices. However, if inventory increases significantly, there will be fewer starts and less price appreciation.

So what will happen with inventory in 2021?

Click on graph for larger image.

This graph, based on data from the National Association of Realtors® (NAR), shows nationwide inventory for existing homes.

According to the NAR, inventory was at 1.42 million in October.   This was the lowest level on record for the month of October.  Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

Inventory had steadily decreased following the housing bust, and seemed to mostly level out in 2017 through 2019. Then inventory really declined in 2020.

Prior to 2020, two of the key reasons inventory was low:

1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors. Most of these rental conversions were at the lower end, and that limited the supply for first time buyers. 

2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80). The leading edge of the boomers are now turning 76 or so, and the boomers selling will probably gradually increase over the next 10 years.

In 2020, inventory really declined due to a combination of potential sellers keeping their properties off the market during a pandemic, and a pickup in buying due to record low mortgage rates, a move away from multi-family rentals and strong second home buying (to escape the high-density cities).

And at the same time, demographics are now favorable for home buying.

NOTE: This graph is updated using the Vintage 2019 estimates. IMPORTANT NOTE: Housing economist Tom Lawler has pointed out some issues with Census estimates, see: Lawler: The Dismal Demographics of 2020

This graph shows the longer term trend for three key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: current to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group peaked in 2018 / 2019 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak around 2023.  This suggests demand for apartments will soften somewhat.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next decade.

This demographics is now positive for home buying, and this is a key reason I expected the increase in single family housing starts in 2020.

Note: Based on Lawler's work, I expect some downward revisions to the prime population following the 2020 Census (lower immigration, more prime age deaths). But the general story will remain the same.

So what does this mean for inventory in 2021?

First, making the assumption that the pandemic will be mostly over by mid-2021, we can make a few general predictions:

1. Potential sellers will be more willing to list their homes (and allow strangers into their homes).

2. The move away from dense cities will slow and maybe end. What makes cities attractive (jobs, cultural events and other entertainment), hasn't been available during the pandemic. That will change when the pandemic ends, and cities will be attractive again. Of course, the trends toward remote working, online shopping and home entertainment will likely continue, and this will allow some people to live anywhere.

3. Demographics will be favorable for home buying.  The generation moving into the home buying years is much larger than the leading edge of the boomers that will be downsizing - or moving into retirement communities.

4. Mortgage rates are probably close to a bottom now, but it seems unlikely rates will increase quickly with the Fed will be holding down rates for the foreseeable future.

5. Homebuilders will continue to respond to low inventories, and housing starts will likely increase further in 2021.

The bottom line is inventory will probably increase, especially in the 2nd half of 2021 (with the assumption that the pandemic will be mostly over by mid-year).   I'll have more on this when I post my predictions for next year.

by Calculated Risk on 12/19/2020 08:48:00 PM

Note: The week-over-week growth in positive cases has slowed.  Hopefully that continues.

I'm looking forward to not posting this data in a few months. Please stay healthy!

The US is now averaging well over 1 million tests per day. Based on the experience of other countries, for adequate test-and-trace (and isolation) to reduce infections, the percent positive needs to be under 5% (probably close to 1%), so the US has far too many daily cases - and percent positive - to do effective test-and-trace.

There were 1,725,036 test results reported over the last 24 hours.

There were 201,841 positive tests.

Over 48,000 US deaths have been reported so far in December. 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 11.7% (red line is 7 day average).  The percent positive is calculated by dividing positive results by total tests (including pending).

And check out COVID Act Now to see how each state is doing. (updated link to new site)

The second graph shows the 7 day average of positive tests reported and daily hospitalizations.

• Record 7 Day Average Deaths

by Calculated Risk on 12/19/2020 08:11:00 AM

Happy Holidays and Merry Christmas!

The key economic reports this week are New Home Sales, Existing Home Sales, the 3rd estimate of Q3 GDP, and November Personal income and outlays.

----- Monday, Dec 21st -----
8:30 AM ET: Chicago Fed National Activity Index for November. This is a composite index of other data.

----- Tuesday, Dec 22nd -----
8:30 AM: Gross Domestic Product, 3nd quarter 2020 (Third estimate). The consensus is that real GDP increased 33.1% annualized in Q3, unchanged from the second estimate of GDP.

10:00 AM: Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 6.70 million SAAR, down from 6.85 million.

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

Housing economist Tom Lawler expects the NAR to report sales of 6.50 million SAAR for November.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for December.

----- Wednesday, Dec 23rd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 900,000 initial claims, up from 885,000 last week.

8:30 AM: Durable Goods Orders for November. The consensus is for a 0.6% increase in durable goods.

8:30 AM: Personal Income and Outlays for November. The consensus is for a 0.2% decrease in personal income, and for a 0.1% decrease in personal spending. And for the Core PCE price index to increase 0.1%.

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

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

The consensus is for 990 thousand SAAR, down from 999 thousand in October.

10:00 AM: University of Michigan's Consumer sentiment index (Final for December). The consensus is for a reading of 81.0.

----- Thursday, Dec 24th -----
The NYSE and the NASDAQ will close early at 1:00 PM ET.

----- Friday, Dec 25th -----
All US markets will be closed in observance of the Christmas Holiday.

by Calculated Risk on 12/18/2020 08:05:00 PM

Note: The week-over-week growth in positive cases has slowed.  Hopefully that continues.

I'm looking forward to not posting this data in a few months. Please stay healthy!

The US is now averaging well over 1 million tests per day. Based on the experience of other countries, for adequate test-and-trace (and isolation) to reduce infections, the percent positive needs to be under 5% (probably close to 1%), so the US has far too many daily cases - and percent positive - to do effective test-and-trace.

There were 1,039,120 test results reported over the last 24 hours.

There were 228,825 positive tests.

Over 45,000 US deaths have been reported so far in December. 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 22.0% (red line is 7 day average).  The percent positive is calculated by dividing positive results by the sum of negative and positive results (I don't include pending).

And check out COVID Act Now to see how each state is doing. (updated link to new site)

The second graph shows the 7 day average of positive tests reported and daily hospitalizations.

• Record Hospitalizations (Over 114,000)

• Record 7 Day Average Deaths

by Calculated Risk on 12/18/2020 06:29:00 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 6.50 million in November, down 5.1% from October’s preliminary pace but up 22.2% from last November’s seasonally adjusted pace.

Local realtor reports, as well as reports from national inventory trackers, suggest that the YOY decline in the inventory of existing homes for sale was slightly greater in November than in October, though what that means for the NAR inventory estimate is unclear. As I’ve noted before, the inventory measure in most publicly-released local realtor/MLS reports excludes listings with pending contracts, but that is not the case for many of the reports sent to the NAR (referred to as the “NAR Report!”), Since the middle of last Spring inventory measures excluding pending listings have fallen much more sharply than inventory measures including such listings, and this latter inventory measure understates the decline in the effective inventory of homes for sale over the last several months.

Finally, local realtor/MLS data suggest that the median existing single-family home sales price last month was up by about 15% from last November. While some of the surge in median sales prices may be related to the mix of home sales, there seems little doubt that record low mortgage rates, a drop in the number of existing SF homeowners listing their homes, a sizable pandemic-related in demand toward single-family homes (including a surge in second-home purchases) and away from multifamily rentals (especially in high-density cities), and historically “easy” mortgage lending conditions from the standpoint of allowable debt-to-income ratios have combined to produce a seldom-seen explosion in single-family home prices (especially in a low-inflation environment).

CR Note: The National Association of Realtors (NAR) is scheduled to release November existing home sales on Tuesday, December 22, 2020 at 10:00 AM ET. The consensus is for 6.70 million SAAR.

by Calculated Risk on 12/18/2020 12:56:00 PM

There are a wide range of estimates, especially on house prices in 2021, with price forecasts ranging from increases of 2% to 10%.  These forecasts use different measures, but that is a very wide spread.

The key in 2021 will be inventory.  If inventory stays extremely low, there will be more housing starts and a larger increase in prices.  However, if inventory increases significantly, there will be fewer starts and less price appreciation. 

Towards the end of each year I collect some housing forecasts for the following year.

The table below shows a few forecasts for 2021:

From Fannie Mae: Housing Forecast: December 2020

From Freddie Mac: Freddie Mac Quarterly Forecast: Housing Market Continues to Rebound as Mortgage Rates Hover at Record Lows

From NAHB: Housing and Interest Rate Forecast, 12/8/2020

From NAR: 2020 Real Estate Forecast Summit

From Wells Fargo: 2021 Annual Economic Outlook

Note: For comparison, new home sales in 2020 will probably be around 845 thousand, and total housing starts around 1.375 million.

Housing Forecasts for 2021
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
Fannie Mae	872	1,107	1,444	2.1%2
Freddie Mac				2.6%2
Goldman Sachs	736		1,440	3.7%
MBA	960	1,121	1,473	2.0%2
Merrill Lynch	950		1,500	4.0%
NAHB	884	1,034	1,383
NAR			1,500	8.0%3
Wells Fargo			1,440
Zillow				10.3%4
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index 3NAR Median Prices 4Zillow HPI

by Calculated Risk on 12/18/2020 11:18:00 AM

Economic activity in the fourth quarter is dependent on the impact of the pandemic. With the number of new cases of COVID over 200,000 per day, hospitalizations at record levels (over 104,000), and deaths per day at new record highs (almost 3,500 each of the last two days), it appears that economic activity has slowed in December.   

Initial unemployment claims have increased sharply over the last two weeks, suggesting that layoffs have increased.  Last week was the BLS reference week for December, and the increase in weekly claims suggest a weak employment report for December.  

However, economic activity was solid in October, and that would suggest PCE growth of close to 6% in Q4, even if November and December see no month-over-month growth.  It is possible that activity slowed in November and will decline in December.

From Goldman Sachs:

We left our Q4 GDP tracking estimate unchanged at +5.0% (qoq ar). [Dec 17 estimate]

From Merrill Lynch:

We revise up our 4Q20 GDP forecast to 5.0% qoq saar from 4.0% previously, marking to market with our latest tracking estimate. This lifts our 2021 annual forecast by a tenth to 4.6% while 2020 remains at -3.5%. [Dec 18 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 2.4% for 2020:Q4 and 5.6% for 2021:Q1. A negative surprise from retail sales data more than offset positive news from housing sector data in both quarters. [Dec 18 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2020 is 11.1 percent on December 17, up from 11.0 percent on December 16. After this morning's housing starts report from the U.S. Census Bureau, the nowcast of fourth-quarter real residential investment growth increased from 31.0 percent to 33.1 percent. [Dec 17 estimate]

by Calculated Risk on 12/18/2020 10:06:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were lower in November in 25 states and the District of Columbia, higher in 7 states, and stable in 18 states, the U.S. Bureau of Labor Statistics reported today. Forty-eight states and the District had jobless rate increases from a year earlier and two states had little change. The national unemployment rate edged down by 0.2 percentage point over the month to 6.7 percent but was 3.2 points higher than in November 2019.

Nonfarm payroll employment increased in 17 states, decreased in 3 states, and was essentially unchanged in 30 states and the District of Columbia in November 2020. Over the year, nonfarm payroll employment decreased in 48 states and the District and was essentially unchanged in 2 states.
...
Three states had unemployment rates above 10.0 percent in November: New Jersey at 10.2 percent and Hawaii and Nevada at 10.1 percent each. Nebraska and Vermont had the lowest rates, 3.1 percent each.

Hawaii and Nevada are being impacted by the lack of tourism.

by Calculated Risk on 12/18/2020 08:30:00 AM

Note: Both Black Knight and the MBA (Mortgage Bankers Association) are putting out weekly estimates of mortgages in forbearance.

This data is as of December 15th.

From Black Knight: Past Week Sees an Expected Mid-Month Rise in Forbearance Plans

After a slight decline last week (-12,000) forbearances have increased once again, but there is some good news in terms of plan starts.

Our weekly snapshot of McDash Flash daily tracking data showed the number of mortgages in active forbearance saw a 37,000 increase from last Tuesday, mirroring what’s become a common trend of mid-month upticks that we’ve observed so far in 2020.
...
Click on graph for larger image.

As a reminder, since the recovery started, we’ve regularly seen the strongest declines early in the month, as expiring forbearance plans are removed.

The primary driver behind this week’s rise – as is the case with the aforementioned trend of mid-month upticks in general – came from a pullback in such plan exits, which were down considerably – but expectedly – week over week.

With more than 550,000 plans still set to expire at the end of December, we could see more positive news in terms of plan removals in the first week of January.

Overall, the number of active forbearance plans is now up 31,000 from the same time last month, and – as of December 15 – 5.3% of all mortgages (2.79 million) are in forbearance.

Together, they represent $563 billion in unpaid principal. The week saw an increase of 18,000 FHA/VA forbearance plans, 14,000 among PLS/portfolio loans and a modest 5,000 rise in GSE plans.

Overall forbearance plan starts, along with both new plans and re-starts, fell this week, which can be seen as good news given last week’s increases among all three of those categories.
emphasis added

by Calculated Risk on 12/17/2020 08:50:00 PM

Note: The week-over-week growth in positive cases has slowed.  Hopefully that continues.

I'm looking forward to not posting this data in a few months. Please stay healthy!

The US is now averaging well over 1 million tests per day. Based on the experience of other countries, for adequate test-and-trace (and isolation) to reduce infections, the percent positive needs to be under 5% (probably close to 1%), so the US has far too many daily cases - and percent positive - to do effective test-and-trace.

There were 1,499,146 test results reported over the last 24 hours.

There were 241,620 positive tests.

Almost 43,000 US deaths have been reported so far in December. 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 16.1% (red line is 7 day average).  The percent positive is calculated by dividing positive results by the sum of negative and positive results (I don't include pending).

And check out COVID Act Now to see how each state is doing. (updated link to new site)

The second graph shows the 7 day average of positive tests reported and daily hospitalizations.

• Record Hospitalizations (Over 114,000)

• Record 7 Day Cases

• Record 7 Day Average Deaths