by Calculated Risk on 7/22/2015 12:27:00 PM

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

From the AIA: Institutional Project Demand Drives Architecture Billings Index to Highest Mark Since 2007

Paced by continued demand for projects such as new education and healthcare facilities, public safety and government buildings, the Architecture Billings Index (ABI) increased in June following fluctuations earlier this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the June ABI score was 55.7, up substantially from a mark of 51.9 in May. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.4, up from a reading of 61.5 the previous month.

“The June numbers are likely showing some catch-up from slow growth earlier this year. This is the first month in 2015 that all regions are reporting positive business conditions and aside from the multi-family housing sector, all design project categories appear to be in good shape,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The demand for new apartments and condominiums may have crested with index scores going down each month this year and reaching the lowest point since 2011.”
...
Sector index breakdown: institutional (59.1), mixed practice (54.7), commercial / industrial (51.6) multi-family residential (47.0)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 55.7 in June, up from 51.9 in May. Anything above 50 indicates expansion 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.  The multi-family residential market was negative for the fifth consecutive month - and this might be indicating a slowdown for apartments - or at least less growth.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 10 of the last 12 months, suggesting a further increase in CRE investment in the 2nd half of 2015.

by Calculated Risk on 7/22/2015 10:10:00 AM

The NAR reports: Existing-Home Sales Rise in June as Home Prices Surpass July 2006 Peak

Existing-home sales increased in June to their highest pace in over eight years, while the cumulative effect of rising demand and limited supply helped push the national median sales price to an all-time high, according to the National Association of Realtors®. ...

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2 percent to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May. Sales are now at their highest pace since February 2007 (5.79 million), have increased year-over-year for nine consecutive months and are 9.6 percent above a year ago (5.01 million). ...

Total housing inventory at the end of June inched 0.9 percent to 2.30 million existing homes available for sale, and is 0.4 percent higher than a year ago (2.29 million). Unsold inventory is at a 5.0-month supply at the current sales pace, down from 5.1 months in May.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June (5.49 million SAAR) were 3.2% higher than last month, and were 9.6% above the June 2014 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 2.30 million in June from 2.28 million in May.   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.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 0.4% year-over-year in June compared to June 2014.  

Months of supply was at 5.0 months in June.

This was above expectations of sales of 5.40 million.  For existing home sales, a key number is inventory - and inventory is still low, but increasing.    I'll have more later ...

by Calculated Risk on 7/22/2015 07:01:00 AM

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

Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 17, 2015. ...

The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 18 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.23 percent, with points decreasing to 0.34 from 0.39 (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.

With higher rates, refinance activity is very low.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 18% higher than a year ago.

by Calculated Risk on 7/21/2015 06:58:00 PM

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

• At 9:00 AM, FHFA House Price Index for May 2015. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% month-to-month increase for this index.

• At 10:00 AM, Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for sales of 5.40 million on seasonally adjusted annual rate (SAAR) basis. Sales in May were at a 5.35 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.45 million SAAR.

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

by Calculated Risk on 7/21/2015 02:59:00 PM

The NAR will report June Existing Home Sales tomorrow, Wednesday, July 22nd at 10:00 AM.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.40 million. Housing economist Tom Lawler estimates the NAR will report sales of 5.45 million on a seasonally adjusted annual rate (SAAR) basis, up from 5.35 million SAAR in May.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for 5 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

Over the last five years, the consensus average miss was 145 thousand with a standard deviation of 155 thousand.  Lawler's average miss was 67 thousand with a standard deviation of 47 thousand.

Note: Many analysts now change their "forecast" after Lawler's estimate is posted, so the consensus has improved a little recently!

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	5.15	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	4.93
Dec-14	5.05	5.15	5.04
Jan-15	5.00	4.90	4.82
Feb-15	4.94	4.87	4.88
Mar-15	5.04	5.18	5.19
Apr-15	5.22	5.20	5.04
May-15	5.25	5.29	5.35
Jun-15	5.40	5.45	---
1NAR initially reported before revisions.

by Calculated Risk on 7/21/2015 11:59:00 AM

People are driving more!

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by 2.7% (7.3 billion vehicle miles) for May 2015 as compared with May 2014.

Travel for the month is estimated to be 275.1 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for May 2015 is 262.1 billion miles, a 3.4% (8.7 billion vehicle miles) increase over May 2014. It also represents a 0.2% change (0.6 billion vehicle miles) compared with April 2015.

The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors.

The rolling 12 month total is moving up, after moving sideways for several years.


Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January.

The second graph shows the year-over-year change from the same month in the previous year.

 In May 2015, gasoline averaged of $2.80 per gallon according to the EIA.  That was down significantly from May 2014 when prices averaged $3.75 per gallon.

Gasoline prices aren't the only factor - demographics is also key. However, with lower gasoline prices, miles driven - on a rolling 12 month basis - is at a new high.

by Calculated Risk on 7/21/2015 10:13:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were little changed in June. Twenty-one states and the District of Columbia had unemployment rate decreases from May, 12 states had increases, and 17 states had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nebraska had the lowest jobless rate in June, 2.6 percent. West Virginia had the highest rate, 7.4 percent.

Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. West Virginia, at 7.4%, had the highest state unemployment rate.

The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 8% (light blue); Only one state (West Virginia) and D.C. are still at or above 7% (dark blue).

by Calculated Risk on 7/20/2015 05:27:00 PM

From Kris Hudson at the WSJ: Bidding Wars Return to Home Market

Bidding wars, a hallmark of last decade’s housing boom, are making a comeback in a number of metro areas across the U.S. But while the earlier wars reflected enthusiasm fueled by easy-money mortgages, the current froth stems from a market short of homes for sale.

The reasons for the scant supply are myriad, including a much-slower-than-expected recovery in home construction. Yet an equally significant problem is that millions of people aren’t listing their homes for sale because they suspect they can’t qualify for a new mortgage, can’t afford the costs associated with a sale or fear that they won’t prevail in the scrum for the few houses available.

At the end of May, there were 2.3 million existing U.S. homes for sale, enough supply to last 5.1 months at the current sales pace. That is below the six to seven months of supply that the National Association of Realtors says is needed for a balanced market.

But in more than one-third of the 300 largest metropolitan areas tracked by Realtor.com, homes listed for sale in June had been on the market for a median of less than two months. A low median figure indicates rapid turnover in inventory as demand for homes exceeds supply.

There are number of reasons inventory is still low, even with higher prices. People shouldn't overlook the obvious impact of investor buying on inventory. Three years ago I wrote:

One key is the substantial increase in investor owned single family homes. These are not "flippers", but cash flow investors - and these investors will not sell just because prices have risen a few percent (I've talked with some of these investors, and they many are making 8% to 12% cash-on-cash after expenses - and they have no intention of selling in the near term). Economist Tom Lawler discussed this back in February, and concluded that a significant "share of the decline in the share of homes for sale reflects the acquisition of SF (and condo) properties by investors as multi-year rental properties".

Investor buying has slowed, and there has even been some selective selling:

Blackstone Group LP’s Invitation Homes, after spending more than $9 billion in a U.S. property-buying spree, is starting to sell some houses as it shifts focus from rapid expansion to fine-tuning its holdings.

The housing landlord has agreed to sell about 1,300 Atlanta-area residences that don’t fit its strategy, which targets communities with higher rents and quality schools, according to Chief Executive Officer John Bartling. The transaction would be the biggest bulk sale for the 3-year-old company, the largest U.S. owner of single-family homes.

So maybe we will see a little more inventory.

Tuesday:
• At 10:00 AM ET, the Federal Reserve will release the Annual revision for Industrial Production and Capacity Utilization

• Also at 10:00 AM, Regional and State Employment and Unemployment for June.

by Calculated Risk on 7/20/2015 02:07:00 PM

Some people incorrectly blame "subprime" for the financial crisis. Others blame interest only loans. Neither are toxic if underwritten correctly.

From Diana Olick at CNBC: Interest-only mortgages: They're baaack

They were the villains of the housing crash. Federal regulators called them toxic. Now interest-only mortgages are making a comeback, but these are not the loans of yesteryear or yester-housing booms.

"I think it's opening the door back to responsible lending, giving people choices," said Mat Ishbia, president and CEO of Michigan-based United Wholesale Mortgage, the second-largest lender through brokers in the nation.

The company announced Monday it is now offering interest-only loans through brokers, with significant safeguards. Borrowers must put 20 percent down, ensuring that they have the "skin in the game" that so many did not during the heady days of the housing boom. They must have at least a 720 FICO credit score, which is well above average, and they must qualify on what the payments will be once they're adjusted higher, not at the starter rate.

There were several problems with mortgage lending in the mid-2000s. There was widespread use of subprime and Alt-A loans with risk layering. Risk layering might have included qualifying at a teaser rate, 100%+ loan-to-value financing, negative amortizing loans, interest only, and/or, self-underwritten loans - so-called stated income loans.

A subprime or interest only loan, underwritten properly, is a reasonable mortgage product (such as described in the article).  However if the lender starts layering risk, then the product could be dangerous.

If you want to understand Subprime and Alt-A, here are two great posts from my former co-blogger Tanta:

What Is "Subprime"?

Reflections on Alt-A

by Calculated Risk on 7/20/2015 11:27:00 AM

From the LA Times: Southern California home sales soar in June; prices climb 5.7%

On Thursday, fresh evidence of that trend emerged in a report from CoreLogic. Home sales posted a sizable 18.1% pop in June from a year earlier ...

The sales increase, the largest in nearly three years, put the number of sales just 9.6% below average, CoreLogic said. A year ago, sales were nearly 24% below average.

Notably, it appears more families are entering the market as the economy improves. Although still elevated in comparison to long-term averages, the share of absentee buyers — mostly investors — slid to 21.1%, the lowest percentage since April 2010, CoreLogic said.
...
Leslie Appleton-Young, chief economist for the California Assn. of Realtors, cautioned that the market still has too few homes for sale and that prices have risen to a point where many can't afford a house.

Unless that changes, sales are unlikely to reach levels in line with historical norms, she said.

“I am not saying the housing market isn't robust,” she said. “I think housing affordability is a big issue...."
emphasis added

The NAR will release existing home sales for June on Wednesday at 10:00 AM ET. The consensus is for sales of 5.40 million on seasonally adjusted annual rate (SAAR) basis, up about 8% from June 2014.