by Calculated Risk on 12/21/2011 03:48:00 PM

The NAR mentioned today:

For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.

Several readers have asked about the impact on GDP. The answer is very little.

When a previously occupied home is sold, nothing is "produced" except some commissions and fees. So the only significant contribution to GDP is the brokers' commissions. Since the BEA uses the NAR existing home sales report to estimate brokers' commissions, commissions will be revised down for 2007 through 2011. Brokers' commissions are a component of Residential Investment.

The following table shows an estimate of these downward revisions. As an example, brokers' commissions in 2007 will be revised down to $76.9 billion from $86.6 billion, and Residential Investment and GDP will be revised down by the same amount (my estimate)

But real GDP annualized growth will mostly be unchanged for the last several years. Since GDP growth is the change from one period to the next, the most impact will come to years with the largest changes in the NAR revisions (from 2006 to 2007). It is possible 2007 will be revised down slightly. There will be no change to real GDP growth in 2011.

Impact of NAR revisions on GDP (Billions)
	2006	2007	2008	2009	2010	2011
NAR Downward Revision	0	-11.1%	-15.5%	-16.0%	-14.6%	-14.4%
Brokers' commissions on sale of structures	101.5	86.6	66.9	58.6	55.2
Revised, Brokers' commissions	101.5	76.9	56.5	49.2	47.1
Residential Investment	761.9	628.7	472.4	354.7	338.1
Revised, Residential Investment	761.9	619.1	462.0	345.3	330.0
Gross domestic product	13,377.2	14,028.7	14,291.5	13,939	14,526.5
Revised, GDP	13,377.2	14,019.1	14,281.1	13,929.6	14,518.4
GDP Real Growth Rate	2.7%	1.9%	-0.3%	-3.5%	3.0%
Revised, GDP Real Growth Rate	2.7%	1.8%	-0.3%	-3.5%	3.0%

Earlier:
• Existing Home Sales in November: 4.42 million SAAR, 7.0 months of supply
• Existing Home Sales Revisions
• CoreLogic: Existing Home Shadow Inventory remains at 1.6 million units
• Existing Home Sales graphs

by Calculated Risk on 12/21/2011 01:52:00 PM

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

From AIA: Architecture Billings Climbs into Positive Territory for First Time in Four Months

Continuing the positive momentum of a nearly three point bump in October, the Architecture Billings Index (ABI) reached its first positive mark since August. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 52.0, following a score of 49.4 in October. This score reflects an overall increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 65.0, up dramatically from a reading of 57.3 the previous month.

“This is a heartening development for the design and construction industry that only a few years ago accounted for nearly ten percent of overall GDP but has fallen to slightly less than six percent,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Hopefully, this uptick in billings is a sign that a recovery phase is in the works. However, given the volatility that we’ve seen nationally and internationally recently, we’ll need to see several more months of positive readings before we’ll have much confidence that the U.S. construction recession is ending.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index increased to 52.0 in November from 49.4 in October. 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.

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 further declines in CRE investment in 2012, but perhaps stabilizing later in 2012 - if this doesn't take another dip.
All current Commercial Real Estate graphs

Earlier:
• Existing Home Sales in November: 4.42 million SAAR, 7.0 months of supply
• Existing Home Sales Revisions
• CoreLogic: Existing Home Shadow Inventory remains at 1.6 million units
• Existing Home Sales graphs

by Calculated Risk on 12/21/2011 11:30:00 AM

The NAR released the benchmark revisions today. From the NAR:

Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.

The impact on GDP is from a reduction in the estimate for Brokers' commissions on sale of structures. That reduction will be minor.

Here are a couple of graphs to illustrate the revisions:

Click on graph for larger image in graph gallery.

The first graph shows the revised sales rate (seasonally adjusted annual rate), and the pre-revision sales rate in blue.

The NAR has characterized this as "drift", but this shows a fairly sharp downward revision to 2007 data.

The second graph shows the revision to inventory.

Inventory has been revised down sharply for years 2007 through 2011. As expected, with the downward revision, inventory is now at late 2005 levels.

The next graph shows inventory by month since 2004. In 2004 (black line), inventory was fairly flat and declined at the end of the year. In 2005 (dark blue line), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

With the revisions, inventory in 2011 (dark red) is below the level of November 2005.

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

Of course this doesn't include "shadow inventory". In an earlier release this morning, CoreLogic estimated the shadow inventory as 1.6 million units.

CoreLogic ... reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months.

The red columns are for 2011.

Earlier:
• Existing Home Sales in November: 4.42 million SAAR, 7.0 months of supply
• Existing Home Sales graphs

by Calculated Risk on 12/21/2011 10:00:00 AM

Note: this includes the downward revisions for years 2007 through 2011.

The NAR reports: Existing-Home Sales Continue to Climb in November

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.
...
Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing homes available for sale, which represents a 7.0-month supply4 at the current sales pace, down from a 7.7-month supply in October.
...
Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.

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 November 2011 (4.42 million SAAR) were 4.0% higher than last month, and were 12.2% above the November 2010 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.58 million in November from 2.74 million in October (revised). This is the lowest level of inventory since July 2005.

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, 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 18.1% year-over-year in November from November 2010. This is the ninth consecutive month with a YoY decrease in inventory.

Months of supply decreased to 7.0 months in November, down from 7.7 months in October. This is still a little higher than normal. These sales numbers were right at the Tom Lawler's estimate of 4.4 million.

I'll have much more on the revisions later.
All current Existing Home Sales graphs

by Calculated Risk on 12/21/2011 08:20:00 AM

From CoreLogic: CoreLogic® Reports Shadow Inventory as of October 2011 Still at January 2009 Levels

CoreLogic ... reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.
...
Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.5-months’ supply), 430,000 are in some stage of foreclosure (1.4-months’ supply) and 370,000 are already in REO (1.2-months’ supply).
...
The shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006.
...
“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.

Click on graph for larger image.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the "visible supply" and cannot be counted as shadow inventory.

So the key number in this report is that as of October, there were 1.6 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.

Note: The unlisted REO still seems a little high since total REO has dropped sharply over the last couple of quarters.