by Calculated Risk on 7/20/2011 11:41:00 AM

A few comments and a graph (of course):

• The NAR reported that inventory increased in June from May (the normal seasonal pattern), and that inventory is off 3.1% from June 2010. Other data sources suggest that the NAR is overstating inventory (inventory will be part of the coming revisions). Inventory is probably down more year-over-year (YoY) than the NAR reported.

• The NAR provided an update on the timing of the "benchmark revisions". The release will be in the fall, and the revisions will be down (no surprise):

Update on Benchmark Revisions: ... NAR began its normal process for benchmarking sales at the beginning of this year in consultation with government agencies, outside housing economists and academic experts; there will be no change to median prices. Although there will be a downward revision to sales volumes, there will be no notable change to previous characterizations of the market in terms of sales trends, monthly percentage changes, etc.

... so we’ve had to develop a new approach with an independent source to improve methodology and to permit more frequent revisions.

Preliminary data based on the new benchmark is expected to be available for review in August. ... Publication of the revisions is not likely before this fall, but we expect to provide a notice one month in advance of the publication date.

This revision is expected to show significantly fewer homes sold over the last few years (perhaps 10% to 15% fewer homes in 2010 than originally reported), and also fewer homes for sale.

Hopefully the NAR will provide 1) the revised data for the last decade and 2) a description of the new methodology (as part of this revision, the NAR is expected to change their method for estimating sales and inventory).

• The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image in graph gallery.

The red columns are for 2011.

Sales NSA are below the tax credit boosted level of sales in June 2010 and June 2009, but slightly above the level of June sales in 2008.

Last year sales collapsed in July (orange column - after the expiration of the tax credit), so expect a report of a large YoY increase in sales announced next month.

The level of sales is still elevated due to investor buying. The NAR noted:

All-cash transactions accounted for 29 percent of sales in June; they were 30 percent in May and 24 percent in June 2010; investors account for the bulk of cash purchases.

First-time buyers purchased 31 percent of homes in June, down from 36 percent in May; they were 43 percent in June 2010 when the tax credit was in place. Investors accounted for 19 percent of purchase activity in June, unchanged from May; they were 13 percent in June 2010.

• As Tom Lawler noted yesterday, the Pending Home Sales Index will probably show an increase in June - and reported sales in July will probably be higher than in June. The Pending Home Sales Index will be released on Thursday July 28th.

Earlier:
• Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply
• Existing Home Sales graphs

by Calculated Risk on 7/20/2011 10:00:00 AM

The NAR reports: June Existing-Home Sales Slip on Contract Cancellations

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8 percent below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit.
...
Total housing inventory at the end of June rose 3.3 percent to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May.

Click on graph for larger image in graph gallery.

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

Sales in June 2011 (4.77 million SAAR) were 0.8% lower than last month, and were 8.8% lower than in June 2010.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.77 million in June from 3.65 million in May.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so 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 decreased 3.1% year-over-year in June from June 2010. This is the fifth consecutive month with a YoY decrease in inventory.

Inventory should increase next month (the normal seasonal pattern), and the YoY change is something to watch closely this year.

Months of supply increased to 9.5 months in June, up from 9.1 months in May. This is much higher than normal. These sales numbers were below the consensus, but close to Lawler's forecast was 4.71 million using the NAR method.

Note: The NAR provided an update on the coming revisions:

[T]here will be a downward revision to sales volumes ... Preliminary data based on the new benchmark is expected to be available for review in August. ... Publication of the revisions is not likely before this fall, but we expect to provide a notice one month in advance of the publication date.

by Calculated Risk on 7/20/2011 08:15:00 AM

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

From Reuters: U.S. architecture billings index falls in June

The Architecture Billings Index fell 0.9 point to 46.3 in June, according the American Institute of Architects (AIA).
...
Demand is weakest in the institutional sector that includes government buildings, reflecting depressed government budgets, according to the monthly survey of architecture firms.

Click on graph for larger image in graph gallery.

This graph shows the Architecture Billings Index since 1996. The index decreased in June to 46.3 from 47.2 in May. Anything below 50 indicates a contraction in demand for architects' services.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions. Note that the government sector is the weakest. The American Recovery and Reinvestment Act of 2009 is winding down, and state and local governments are still cutting back.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this suggests another dip in CRE investment in 2012.

by Calculated Risk on 7/20/2011 07:17:00 AM

The MBA reports: Refinance Applications Surge in Latest MBA Weekly Survey

The Refinance Index increased 23.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier.
...
"Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Refinance applications have surged in response and the refinance index is at its second highest level of the year. One factor that may be contributing to this increase is that borrowers potentially impacted by impending decreases in the conforming loan limit may be opting to lock in fixed-rate financing now."
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54 percent from 4.55 percent, with points decreasing to 0.98 from 0.99 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

The recent decline in mortgage rates hasn't boosted purchase applications; the four week average of the purchase index is still mostly moving sideways at about 1997 levels.

Of course this doesn't include the large number of cash buyers ... but this suggests purchase activity remains fairly weak.

by Calculated Risk on 7/19/2011 07:01:00 PM

As I mentioned earlier, the U.S. is on pace for a record low number of multifamily completions in 2011. That is just part of the story ... the U.S. is on pace for a record low number of total completions, and the fewest net housing units added to the housing stock, since the Census started tracking completions.

Here are some excerpts from Tom Lawler today:

The Commerce Department reported that US manufactured housing shipments ran at a seasonally adjusted annual rate of 48,000 in May, up slightly from April’s 46,000, but still an incredibly low pace by historical standards.
...
Total housing production in 2011 should fall south of 600,000 units, compared to the 2.092 million housing units that came on line in 2006.

Sadly, there are no good, timely data on the likely number of housing units that will be lost to various factors (demolition, conversions, disaster, etc.). The Census 2010 data suggested that the annual “scrappage” rate was substantially lower than other Census data had suggested last decade, though that could well have been related to the housing boom years, with higher conversions or units added from non-residential use than various surveys (based on relatively small samples) suggested. Anecdotal evidence suggests that scrappage rates of late would not be that low, and a conservative estimate for 2011 would be in the 250,000 range – implying growth in the housing stock for the calendar year of under 350,000 units.

If those numbers are in the ballpark, then from April 1st of last year (the Census 2010 snapshot) to the end of 2011, the US housing stock will probably have grown by only about 706,000 units or so. Sadly, there are no good, reliable, and timely data on US household growth since April 1, 2010 (theme on government housing data!), making it tough to estimate household growth from 4/1/2010 to 12/31/2011. If annualized household growth over that 21-month period were, say, around 800,000 (below “trend”), then the “excess” supply of housing from April Fool’s Day 2010 to the end of 2011 would have shrunk by about 694,000.

I put the following table together for the last few years. For 2011 I used the first half pace (manufactured housing through May).

As I noted earlier, multi-family housing completions will fall even further and will probably be close to 100 thousand units this year. Also note that Lawler thinks scrappage is closer to 250,000 per year.

So this means there will be a record low number of housing units added to the housing stock this year (good news with all the excess inventory), and that the overhang of excess inventory should decline significantly in 2011.

Housing Units added to Stock (000s)
	2005	2006	2007	2008	2009	2010	2011 (1st Half pace)
1 to 4 Units	1,673.4	1,695.3	1,249.8	842.5	534.6	505.2	437.0
5+ Units	258.0	284.2	253.0	277.2	259.8	146.5	119.0
Manufactured Homes	146.8	117.3	95.7	81.9	49.8	50	46
Sub-Total	2,078.2	2,096.8	1,598.5	1,201.6	844.2	701.7	602.0
Scrappage	200	200	200	200	150	150	150
Total added to Stock	1,878.2	1,896.8	1,398.5	1,001.6	694.2	551.7	452.0

The key points are:
1) there will be record low number of completions this year, and
2) that means a record low number of housing units added to the stock, and
3) that means the excess vacant inventory is declining.

Earlier:
• Housing Starts increase in June
• Multi-family Starts and Completions