by Calculated Risk on 7/18/2011 03:58:00 PM

Economist Tom Lawler sent me an update to his June forecast (about the same sales and inventory forecast as the post this weekend with more detail), from Lawler:

Based on my regional tracking of local home sales reports, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 4.71 million in June, down 2.1% from May’s pace and down 9.9% from last June’s pace. While at first glance this below-consensus forecast might seem at odds with May’s increase in pending sales, that increase followed a sharp drop in April, and pending sales tend to lead closed sales by over a month (though lags vary dramatically across areas/regions).

Last June the NAR estimated that existing home sales ran at a seasonally adjusted annual rate of 5.23 million. Looking at local realtor reports, there were only a handful of areas experiencing YOY increases in sales; some experienced modest declines; and quite a few experienced sizable YOY declines. This June had the same number of business days as last June, and this June’s seasonal factor shouldn’t be much different from last June’s.

On the inventory front, the NAR’s numbers appear to display a different seasonal pattern than do actual listing data, though I don’t have a long time series comparison. Based on the limited information I have, I expect the NAR’s inventory measure will decline by about 1.5% from May to June, and will be down about 5.7% from last June. The NAR’s inventory measure has shown decidedly smaller YOY declines this year than have actual listings, potentially suggesting that sales vs. a year ago have been weaker than the NAR’s estimates suggest.

On the pending home sales front, deriving estimates is more challenging because many realtor groups don’t report statistics on new pending sales to the public. Of course, many realtor groups don’t actually TRACK new pending sales, and as a result the NAR’s sample for pending sales is only about half as large as that used to estimate closed existing home sales. This is one of many reasons why the correlation between the NAR’s pending home sales index and closed existing home sales is not as high as one might expect.

However, based on the data I’ve seen so far, I estimate that the NAR’s pending home sales index in June will show a seasonally adjusted increase of 2.6% from May, which translates into a YOY gain of 20%. Last June, of course, pending sales were extremely depressed, as the federal home buyer tax credit – which expired based on contract signing last April – led many home buyers to accelerate planned home purchases. Based on the May and June pending sales data, existing home sales should rebound modestly in July and August.

by Calculated Risk on 7/18/2011 01:19:00 PM

The next emergency EU summit is scheduled for this coming Thursday.

Wolfgang Münchau is very concerned, from the Financial Times: Plan D stands for default and death of euro

The biggest single danger in the eurozone crisis now is that events are moving too fast ... It was a huge mistake to postpone an emergency EU summit until Thursday this week.
excerpt with permission

This is a key meeting. If there is no agreement on how to proceed, the markets could really panic.

Also many people were disappointed with the stress tests released Friday. From the WSJ: Euro Stress Tests Tell Only Half the Story

Here is what the official stress tests results didn't tell you: 27 European banks would need to raise a combined €82 billion ($155 billion) in new capital ... That is well above the €2.5 billion shortfall, spread across eight banks, announced Friday.

The €82 billion doesn't tell the full story.

Naturally bond yields are rising. A key European analyst (I can't name) put out a note last night that ended with "Run like hell."

The Greek 2 year yield is up to a record 36%.

The Portuguese 2 year yield is up to a record 20.4%.

The Irish 2 year yield is up to a record 23.2%.

And of bigger concern ... the Italian 2 year yield is up to a record 4.6%. And the Spanish 2 year yield is up to a record 4.6%.

Still much lower than Greece, Portugal and Ireland, but rising fast.

Check out the Italian and Spanish 10 year yields for more hockey sticks! Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased to 15 in July from 13 in June. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Gains Two Points in July

Builder confidence in the market for newly built, single-family homes rose two points to 15 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today. The gain largely offsets a three-point dip recorded in June, and marks the ninth time out of the past 10 months in which the index has held within the same three-point range.
...
"We view the upward movement in the July HMI as a correction from an exceptionally weak number in June that was at least partly attributable to negative economic news and the close of a disappointing spring selling season," said NAHB Chief Economist David Crowe. "The strong rebound in sales expectations for the next six months likewise marks a return to trend. Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve."
...
Two out of three of the HMI's component indexes rebounded in July from declines in the previous month. The component gauging current sales conditions rose two points to 15, returning to its May level, while the component gauging sales expectations in the next six months rose seven points to 22, which is where it stood in April. The component gauging traffic of prospective buyers held even with the previous month, at 12.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the July release for the HMI and the May data for starts (June housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 7/18/2011 08:12:00 AM

The BuildFax Residential Remodeling Index was at 124.3 in May, up from 109.7 in April. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 22% year-over-year--and for the nineteenth straight month--in May to 124.3, the highest number in the index to date. Residential remodels in May were up month-over-month 14.6 points (13%) from the April value of 109.7, and up year-over-year 22.1 points from the May 2010 value of 102.2.
...
All regions were up month-over-month, with the Northeast up 9.8 points (12%), the South up 7.3 points (7%), the Midwest up 16.3 points (18%), and the West up 8.7 points (7%).
...
"Through the first five months of 2011 we have seen impressive gains within the remodeling index and May has continued that trend with a record setting month," said Joe Emison, Vice President of Research and Development at BuildFax. "Even with the continued struggles in the economy, the remodeling industry has been a bright spot, as consumers look to make upgrades to their current homes, rather than purchasing a new residence.”

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 22% from May 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

by Calculated Risk on 7/17/2011 08:23:00 PM

From economist Tom Lawler:

Based on what data I've seen so far, I estimate that existing home sales, as estimated by the NAR, ran at a seasonally adjusted annual rate of about 4.72 million in June, down from 4.81 million in May. That is below consensus, but is what the incoming data suggest [CR note: consensus is 4.9 million SAAR]. It's actually not shockingly inconsistent with the pending sales data, which showed a huge drop in April and then an increase in May, since the lag from pending to closed is on average over a month -- though it appears to vary a boatload across various markets.

Trying to gauge the NAR's inventory measure from actual listings data has been tricky, but as best as I can tell from the relationship between actual listings and the NAR's number, the NAR will probably report a decline in listings on the month of about 1 to 1.5%.

Pending sales in June appear to have increased slightly from May.

CR Notes: The NAR reported existing home sales at a 4.81 million (SAAR) in May, inventory of 3.72 million units, and 9.3 months of supply.

Based on Tom Lawler's estimate, this will be the lowest level of inventory in June since 2005. And sales will decline about 10% YoY from June 2010 - the last month that was boosted by the homebuyer tax credit. Months of supply would increase slightly from May.

No official word yet on when the NAR will release their benchmark revision (expected later this summer - and expected to show significant downward revisions to sales and inventory for the last several years).

Yesterday:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th