by Calculated Risk on 11/03/2021 12:21:00 PM

Today, in the Real Estate Newsletter: The Market Impact of the Closure of Zillow Offers

Excerpt:

Many people are discussing the Zillow’s business decision to discontinue Zillow Offers. This was a essentially a house flipping program. My question is what - if any - will be the market impact of the closure.
...
But the bottom line is inventories are very low, mortgage rates are still historically low, and demographics are currently favorable for home buying.

If the housing market slows - for whatever reason - I think the slowdown will show up in active existing home inventory. This is why I track local market inventory so closely every month. Some markets have seen inventories increase, but overall active inventory was at a record low for September.

We should get some local October inventory numbers soon.

by Calculated Risk on 11/03/2021 10:05:00 AM

(Posted with permission). The October ISM® Services index was at 66.79%, up from 61.9% last month. The employment index decreased to 51.6%, from 53.0%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: Services PMI® at 66.7% October 2021 Services ISM® Report On Business®

Economic activity in the services sector grew in October for the 17th month in a row — with the rate of expansion setting a record for the fourth time in 2021 — say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In October, the Services PMI® registered another all-time high of 66.7 percent, 4.8 percentage points above September’s reading of 61.9 percent. This figure exceeds the former all-time high of 64.1 percent in July; previous records were set in May (64 percent) and March (63.7 percent). The data quickly explains the elevated Services PMI® reading, as two of the four equally weighted subindexes that directly factor into the composite index set all-time highs: The Business Activity Index reached 69.8 percent, an increase of 7.5 percentage points compared to the reading of 62.3 percent in September, and the New Orders Index hit 69.7 percent, up 6.2 percentage points from last month’s figure of 63.5 percent. (The other two subindexes are Employment and Supplier Deliveries, both also in expansion territory in October.)
emphasis added

This was above the consensus forecast,  however the employment index decreased to 51.6%, from 53.0% the previous month.

by Calculated Risk on 11/03/2021 08:19:00 AM

From ADP:

Private sector employment increased by 571,000 jobs from September to October according to the October ADP® National Employment ReportTM. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by the ADP Research Institute® in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual data of those who are on a company’s payroll, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis

“The labor market showed renewed momentum last month, with a jump from the third quarter average of 385,000 monthly jobs added, marking nearly 5 million job gains this year,” said Nela Richardson, chief economist, ADP. “Service sector providers led the increase and the goods sector gains were broad based, reporting the strongest reading of the year. Large companies fueled the stronger recovery in October, marking the second straight month of impressive growth.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is revving back up as the Delta wave of the pandemic winds down. Job gains are accelerating across all industries, and especially among large companies. As long as the pandemic remains contained, more big job gains are likely in coming months.”
emphasis added

This was well above the consensus forecast of 400,000 for this report.

The BLS report will be released Friday, and the consensus is for 413 thousand non-farm payroll jobs added in October. The ADP report has not been very useful in predicting the BLS report.

by Calculated Risk on 11/03/2021 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 October 29, 2021.

... The Refinance Index decreased 4 percent from the previous week and was 33 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 9 percent lower than the same week one year ago.

“Mortgage rates decreased for the first time since August, as concerns about supply-chain bottlenecks, waning consumer confidence, weaker economic growth, and rising inflation pushed Treasury yields lower. Most of the decline in rates came later in the week, which is likely why refinance applications declined to the lowest level since January 2020, and the overall share of activity fell to the lowest since July 2021,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Government refinance applications fell for the sixth straight week, as it becomes evident that an increasing number of borrowers have already refinanced.”

Added Kan, “Purchase activity continues to be held back by high prices and low for-sale inventory, but current applications levels still point to healthy housing demand. MBA is forecasting for a record $1.6 billion in purchase mortgage originations this year, and sustained demand leading to another record year in 2022.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.24 percent from 3.30 percent, with points remaining unchanged at 0.34 (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 relatively low rates, the index remains somewhat elevated - but the recent bump in rates has slowed activity to the lowest level since January 2020.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 9% year-over-year unadjusted.

Note: The year ago comparisons for the unadjusted purchase index are now difficult since purchase activity was strong in the second half of 2020.

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

by Calculated Risk on 11/02/2021 09:00:00 PM

Here is my FOMC Preview: Taper Announcement Expected.

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

• At 8:15 AM, The ADP Employment Report for October. This report is for private payrolls only (no government).  The consensus is for 400,000 jobs added, down from 568,000 in September.

• At 10:00 AM, the ISM Services Index for October.  The consensus is for a decrease to 59.5 from 61.9.

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to announce tapering of asset purchases at this meeting.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 11/02/2021 06:29:00 PM

Wards Auto released their estimate of light vehicle sales for October. Wards Auto estimates sales of 12.99 million SAAR in October 2021 (Seasonally Adjusted Annual Rate), up 6.8% from the September sales rate, and down 20.8% from October 2020. 

This was well above the consensus estimate of 12.4 million SAAR.

Click on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for October (red).

The impact of COVID-19 was significant, and April 2020 was the worst month.

After April 2020, sales increased, and were close to sales in 2019 (the year before the pandemic).  

However, sales decreased earlier this year due to supply issues. It appears the "supply chain bottom" was in September.

by Calculated Risk on 11/02/2021 05:35:00 PM

The BEA released the underlying details for the Q3 advance GDP report on Friday.

The BEA reported that investment in non-residential structures increased at a 2.4% annual pace in Q3. Note that weakness in non-residential structures started in 2019, before the pandemic.  

Investment in petroleum and natural gas structures increased sharply in Q3 compared to Q2, and was up 67% year-over-year.   

Click on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP.

Investment in offices (blue) increased slightly in Q3, and was down 4.9% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down about 2% year-over-year in Q3 - and near a record low as a percent of GDP.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment decreased slightly in Q3 compared to Q2, and lodging investment was down 29% year-over-year.

All three sectors - offices, malls, and hotels - are being hurt significantly by the pandemic.

The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Even though investment in single family structures has increased from the bottom, single family investment is just approaching normal levels as a percent of GDP.

Investment in single family structures was $411 billion (SAAR) (about 1.8% of GDP), and up 38% year-over-year.

Investment in multi-family structures decreased slightly in Q3.

Investment in home improvement was at a $324 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.4% of GDP).  Home improvement spending has been strong during the pandemic.

Note that Brokers' commissions (black) increased sharply last year as existing home sales increased in the second half of 2020, but was down in Q2 and Q3.   Brokers' commissions were up 7% year-over-year in Q2.

by Calculated Risk on 11/02/2021 02:50:00 PM

The CDC is the source for all data.

According to the CDC, on Vaccinations.  Total doses administered: 423,005,384, as of a week ago 414,302,192, or 1.24 million doses per day.

COVID Metrics
	Today	Week Ago	Goal
Percent fully Vaccinated	58.0%	57.4%	≥70.0%1
Fully Vaccinated (millions)	192.6	190.7	≥2321
New Cases per Day3🚩	74,798	67,184	≤5,0002
Hospitalized3	42,186	47,283	≤3,0002
Deaths per Day3🚩	1,190	1,174	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37 day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7 day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

IMPORTANT: For "herd immunity" most experts believe we need 70% to 85% of the total population fully vaccinated (or already had COVID).  Note: COVID will probably stay endemic (at least for some time).

KUDOS to the residents of the 4 states that have achieved 70% of total population fully vaccinated: Vermont at 71.3%, Rhode Island, Connecticut, and Maine at 70.6% .

KUDOS also to the residents of the 13 states and D.C. that have achieved 60% of total population fully vaccinated: Massachusetts at 69.7%, New York, New Jersey, Maryland, New Mexico, New Hampshire, Washington, Oregon, Virginia, District of Columbia,  Colorado, California, Pennsylvania, and Illinois at 60.5%.

The following 22 states have between 50% and 59.9% fully vaccinated: Minnesota at 59.9%, Delaware, Hawaii, Florida, Wisconsin, Nebraska, Iowa, Illinois, Michigan, Kentucky, South Dakota, Texas, Arizona, Kansas, Nevada, Alaska, Utah, North Carolina, Ohio, Montana, Oklahoma, and South Carolina at 50.1%.

Next up (total population, fully vaccinated according to CDC) are Indiana at 49.9%, Missouri at 49.8%, Georgia at 48.2%, and Arkansas at 48.1%.

Click on graph for larger image.

This graph shows the daily (columns) and 7 day average (line) of positive tests reported.

by Calculated Risk on 11/02/2021 11:56:00 AM

Here is another monthly update on framing lumber prices.  

This graph shows CME random length framing futures through November 2nd.

Lumber was at $557 per 1000 board feet this morning.  

This is down from a peak of $1,733, and up $25 from a year ago.

Click on graph for larger image in graph gallery.

Lumber price are up 6% year-over-year.

There were supply constraints over the last year, for example, sawmills cut production and inventory at the beginning of the pandemic, and the West Coast fires in 2020 damaged privately-owned timberland (and maybe again in 2021).  

The supply constraints have eased somewhat.

And there was a huge surge in demand for lumber (demand remains strong).

by Calculated Risk on 11/02/2021 10:14:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q3 2021.

The results of this survey were significantly distorted by the pandemic in 2020.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers. Analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

"National vacancy rates in the third quarter 2021 were 5.8 percent for rental housing and 0.9 percent for homeowner housing. The rental vacancy rate was 0.6 percentage points lower than the rate in the third quarter 2020 (6.4 percent) and 0.4 percentage points lower than the rate in the second quarter 2021 (6.2 percent).

The homeowner vacancy rate of 0.86 percent was lower than the rate in the third quarter 2020 (0.95 percent) and virtually the same as the rate in the second quarter 2021 (0.86 percent). (Note: the 0.86 percent and the 0.95 percent each round to 0.9 percent in the tables below).

The homeownership rate of 65.4 percent was 2.0 percentage points lower than the rate in the third quarter 2020 (67.4 percent) and virtually the same as the rate in the second quarter 2021 (65.4 percent). "
emphasis added

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010.  The Census Bureau will released data for 2020 soon.

The HVS homeownership rate was unchanged at 65.4% in Q3, from 65.4% in Q2.

The results starting in Q2 2020 were distorted by the pandemic.

The HVS homeowner vacancy was unchanged at 0.9% in Q3.

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate decreased to 5.8% in Q3 from 6.2% in Q2.  This fits with other data suggesting strong rental demand in Q3.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.