by Calculated Risk on 12/18/2024 11:30:00 AM

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

From the AIA: ABI November 2024: Architecture firm billings remain flat

Despite the AIA/Deltek Architecture Billings Index (ABI) score dipping slightly below 50 for the month, it remains close enough to that threshold to indicate that the share of firms that reported declining billings was essentially the same as the share that reported increasing billings. Although it would be better to see the majority of firms reporting growth, the fact that billings have returned to flat after declining for nearly two full years is an encouraging sign that conditions are improving for more firms. Inquiries into new work continued to grow steadily, and while the value of newly signed design contracts declined for the eighth consecutive month, the pace of that decline slowed this month.

Business conditions continued to improve in the West and South regions of the country in November, where firm billings increased for the second consecutive month. Most notable was the strength of billings growth in the West, where the score was the highest it has been since mid-2022. Although billings continued to decline at firms located in the Northeast and Midwest, the pace of the decline slowed in both regions this month. There was significant improvement in business conditions at firms with a multifamily residential specialization in November as well, where they reported their first increase in billings since August 2022, at the end of the post-pandemic boom. In addition, billings increased for the second consecutive month at firms with an institutional specialization. While billings continued to decline at firms with a commercial/industrial specialization, the pace of the decline slowed significantly.
...
The ABI score is a leading economic indicator of construction activity, providing an approximately nine-to-twelve-month glimpse into the future of nonresidential construction spending activity. The score is derived from a monthly survey of architecture firms that measures the change in the number of services provided to clients.
emphasis added

• Northeast (46.9); Midwest (48.1); South (50.0); West (54.3)

• Sector index breakdown: commercial/industrial (49.4); institutional (50.6); multifamily residential (50.8)

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 49.7 in November, down from 50.3 in October.  Anything below 50 indicates a decrease in demand for architects' services.

This index has indicated contraction for 24 of the last 26 months.

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 usually leads CRE investment by 9 to 12 months, so this index suggests a slowdown in CRE investment into 2025.

This was first positive score for multi-family since August 2022.  This suggests we will see further weakness in multi-family starts, but a possible pickup in the 2nd half of 2025.

by Calculated Risk on 12/18/2024 09:09:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Housing Starts Decreased to 1.289 million Annual Rate in November

A brief excerpt:

Total housing starts in November were below expectations, however, starts in September and October were revised up slightly, combined.

The third graph shows the month-to-month comparison for total starts between 2023 (blue) and 2024 (red).

Total starts were down 14.6% in November compared to November 2023. The YoY decrease in November total starts was a combination of further weakness in multi-family starts and a difficult comparison to starts in November 2023.

Single family starts have been up year-over-year in 13 of the last 17 months, whereas multi-family has been up year-over-year in only 2 of last 18 months. Year-to-date (YTD), total starts are down 4.3% compared to the same period in 2023. Single family starts are up 7.2% YTD, and multi-family down 30.1% YTD.

There is much more in the article.

by Calculated Risk on 12/18/2024 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,289,000. This is 1.8 percent below the revised October estimate of 1,312,000 and is 14.6 percent below the November 2023 rate of 1,510,000. Single-family housing starts in November were at a rate of 1,011,000; this is 6.4 percent above the revised October figure of 950,000. The November rate for units in buildings with five units or more was 264,000.

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,505,000. This is 6.1 percent above the revised October rate of 1,419,000, but is 0.2 percent below the November 2023 rate of 1,508,000. Single-family authorizations in November were at a rate of 972,000; this is 0.1 percent above the revised October figure of 971,000. Authorizations of units in buildings with five units or more were at a rate of 481,000 in November.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts since 2000.

Multi-family starts (blue, 2+ units) decreased month-over-month in November.   Multi-family starts were down 27.6% year-over-year.

Single-family starts (red) increased in November and were down 10.2% year-over-year.

The second graph shows single and multi-family housing starts since 1968.

This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse and recovery in single-family starts.

Total housing starts in November were below expectations, however, starts in September and October were revised up, combined.

I'll have more later …

by Calculated Risk on 12/18/2024 07:00:00 AM

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

Mortgage applications decreased 0.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 13, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 41 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 2 percent compared with the previous week and was 6 percent higher than the same week one year ago.

“Mortgage rates increased last week, leading to overall mortgage application activity decreasing for the first time in five weeks, said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis. Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market. Refinance applications declined last week, largely driven by VA refinances that were down 17 percent after two weeks of gains.”
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.75 percent from 6.67 percent, with points remaining unchanged at 0.66 (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 MBA mortgage purchase index.

According to the MBA, purchase activity is up 6% year-over-year unadjusted. 

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

Purchase application activity is up about 25% from the lows in late October 2023 and is now 4% above the lowest levels during the housing bust.  

The second graph shows the refinance index since 1990.

The refinance index increased as mortgage rates declined in September, but the index declined as rates moved back up.

by Calculated Risk on 12/17/2024 07:07:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

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 November. The consensus is for 1.344 million SAAR, up from 1.311 million SAAR.

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

• At 2:00 PM, FOMC Meeting Announcement. The Fed is expected to cut rates 25bp at this meeting.

• At 2:00 PM, FOMC Projections This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

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

by Calculated Risk on 12/17/2024 01:00:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Lawler: Early Read on Existing Home Sales in November

A brief excerpt:

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 4.09 million in November, up 3.3% from October’s preliminary pace and up 4.6% from last November’s seasonally adjusted pace. Unadjusted sales should show a moderately lower YOY % gain, reflecting this November’s lower business day count compared to last November’s.

Local realtor/MLS reports suggest that the median existing single-family home sales price last month was up by about 5.3% from a year earlier.

CR Note: The NAR is scheduled to release November Existing Home sales on Thursday, December 19th at 10:00 AM. The consensus is for 3.97 million SAAR, up from 3.96 million in October. Take the over! Last year, the NAR reported sales in November 2023 at 3.91 million SAAR. This will be the second year-over-year gain since July 2021 (last month was the first).

There is much more in the article.

by Calculated Risk on 12/17/2024 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 46, unchanged from 46 last month. Any number below 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Moves Higher as Election Uncertainty is Lifted

Builder sentiment held steady to end the year as high home prices and mortgage rates offset renewed hope about a better regulatory business climate in 2025. Along those lines, builders expressed increased optimism for higher sales expectations in the next months.

Builder confidence in the market for newly built single-family homes was 46 in December, the same reading as last month, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.

“While builders are expressing concerns that high interest rates, elevated construction costs and a lack of buildable lots continue to act as headwinds, they are also anticipating future regulatory relief in the aftermath of the election,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “This is reflected in the fact that future sales expectations have increased to a nearly three-year high.”

“NAHB is forecasting additional interest rate cuts from the Federal Reserve in 2025, but with inflation pressures still present, we have reduced that forecast from 100 basis points to 75 basis points for the federal funds rate,” said NAHB Chief Economist Robert Dietz. “Concerns over inflation risks in 2025 will keep long-term interest rates, like mortgage rates, near current levels with mortgage rates remaining above 6%.”

The latest HMI survey also revealed that 31% of builders cut home prices in December, unchanged from November. Meanwhile, the average price reduction was 5% in December, the same rate as in November. The use of sales incentives was 60% in December, also unchanged from November.
...
The HMI index gauging current sales conditions held steady at 48 while the gauge charting traffic of prospective buyers posted a one-point decline to 31. The component measuring sales expectations in the next six months rose three points to 66, the highest level since April 2022.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 57, the Midwest moved two points higher to 46, the South posted a two-point gain to 44 and the West fell one point to 40.
emphasis added

Click on graph for larger image.

This graph shows the NAHB index since Jan 1985.

This was at the consensus forecast.

by Calculated Risk on 12/17/2024 09:15:00 AM

Earlier from the Fed: Industrial Production and Capacity Utilization

Industrial production (IP) moved down 0.1 percent in November after declining 0.4 percent in October. In November, manufacturing output rose 0.2 percent, boosted by a 3.5 percent increase in the index for motor vehicles and parts. The indexes for mining and utilities fell 0.9 percent and 1.3 percent, respectively. At 102.0 percent of its 2017 average, total IP in November was 0.9 percent below its year-earlier level. Capacity utilization stepped down to 76.8 percent in November, a rate that is 2.9 percentage points below its long-run (1972–2023) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, but below the level in February 2020 (pre-pandemic).

Capacity utilization at 76.8% is 2.9% below the average from 1972 to 2023.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased to 102.0. This is above the pre-pandemic level.

Industrial production was below consensus expectations.

by Calculated Risk on 12/17/2024 08:30:00 AM

On a monthly basis, retail sales increased 0.7% from October to November (seasonally adjusted), and sales were up 3.8 percent from November 2023.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for November 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $724.6 billion, an increase of 0.7 percent from the previous month, and up 3.8 percent from November 2023. ... The September 2024 to October 2024 percent change was revised from up 0.4 percent to up 0.5 percent.
emphasis added

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline was up 0.7% in November.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by 4.0% on a YoY basis.

The change in sales in November were above expectations, and sales in September and October were revised up, combined.

by Calculated Risk on 12/16/2024 07:13:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Start New Week With Some Hope

Last week wasn't great for mortgage rates. They moved higher on each of the 5 days. Moreover, there was a distinct lack of logical motivation from the economic data. In fact, on a few occasions, the data argued for lower rates only for things to move in the other direction by the end of the day.

The new week is off to a different start. ...

Traders are already assuming the Fed will pencil in a slower pace of rate cuts than they did in the September meeting. Some of the recent rise in rates reflects those trades. [30 year fixed 6.72%]
emphasis added

Tuesday:
• At 8:30 AM ET, Retail sales for November will be released.  The consensus is for a 0.5% increase in retail sales.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for November. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 77.2%.

• At 10:00 AM, The December NAHB homebuilder survey. The consensus is for a reading of 46, unchanged from 46 the previous month. Any number below 50 indicates that more builders view sales conditions as poor than good.