by Calculated Risk on 1/22/2013 01:45:00 PM

From the National Multi Housing Council (NMHC): Expansion Moderates for Apartment Markets in January

After a seven-quarter run, expansion moderated for apartment markets according to the National Multi Housing Council’s (NMHC) January Quarterly Survey of Apartment Market Conditions. For the first time since 2010, two of the four indexes – Market Tightness (45) and Sales Volume (49) – dipped below 50, though just barely. The two financing indexes show continued improvement for the 8th consecutive quarter, as the Equity Financing (56) and Debt Financing (57) Indexes remained above the breakeven level of 50.

“The pace of improvement in the apartment industry is moderating, but the expansion remains solid,” said Mark Obrinsky, NMHC’s Vice President for Research and Chief Economist. “Lease-up demand is seasonally weak in January, which would fully explain the small drop in the Market Tightness Index. Beyond that, markets were quite tight three months ago, and remain tight today. New construction has picked up considerably since its 2009 low, but is still playing catch-up with the increase in demand for apartment residences.”
...
Market Tightness Index declined to 45 from 56. The change ends an 11-quarter run for the index at 50 or higher. Fifty-nine percent of respondents said that markets were unchanged, reflecting stable demand conditions. One quarter of respondents saw markets as looser, up from 14 percent in October, while 16 percent viewed markets as tighter.
emphasis added

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. This quarterly decline followed eleven consecutive quarters with tighter market conditions.

The recent Reis data showed apartment vacancy rates fell in Q4 2012 to 4.5%, down from 4.7% in Q3 2012. As Obrinsky noted, markets are still tight, but this might suggest the vacancy rate will stop declining (caveat: this is just one quarter of survey data and the index might bounce back).

On supply: Even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be many more completions in 2013 than in 2012, increasing the supply.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010. This survey now suggests vacancy rates might stop falling - a possible significant market change - although apartment markets are still tight, so rents will probably continue to increase.

by Calculated Risk on 1/22/2013 12:14:00 PM

Here is how Reuters reported on existing home sales: Existing Home Sales Unexpectedly Fall 1 Percent

U.S. home resales unexpectedly fell in December as fewer people put their properties on the market, although not by enough to derail the boost housing will likely provide to the economy this year.

There is so much wrong with that sentence. First, for those reading the correct site, the forecast was for 4.97 million sales on a seasonally adjusted annual rate basis, and inventory decling to 1.87 million. The NAR reported sales of 4.94 million and inventory of 1.82 million. Hard to call that "unexpected" (although sales were below the less accurate "consensus" forecast).

But far more important is that flat or even declining existing home sales is the wrong place to look for a "housing recovery". As the number of distressed sales decline, the number of total sales might decline too - but the number of conventional sales is increasing! An increase in conventional sales would be good news, not bad news.  Although I have limited confidence in the NAR survey, the NAR reported:

Distressed homes - foreclosures and short sales - accounted for 24 percent of December sales ... below the 32 percent share in December 2011.

Using the NAR surveys and sales reports would suggest 3.75 million conventional sales in December 2012 (SAAR), up 26% from 2.98 conventional sales in December 2011. That is a significant increase.

Also fewer distressed sales probably means more housing starts and new home sales - and that is the key for housing providing a "boost" to the economy in 2013.

Finally, when we look at the existing home sales report, the key number is inventory. And inventory is at the lowest level since January 2001, and months-of-supply fell to 4.4 months - the lowest since May 2005.

For those looking at the correct numbers, this was the expected report - and it was solid.

Important note: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Click on graph for larger image.

This graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

This year (dark red for 2012) inventory is at the lowest level for the month of December since 2000, and inventory is sharply below the level in December 2005 (not counting contingent sales).   The months-of-supply has fallen to 4.4 months.  Since months-of-supply uses Not Seasonally Adjusted (NSA) inventory, and Seasonally Adjusted (SA) sales, I expect months-of-supply to start increasing in February.

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

Sales NSA in December (red column) are  above 2007 through 2011. Sales are well below the bubble years of 2005 and 2006.

Earlier:
• Existing Home Sales in December: 4.94 million SAAR, 4.4 months of supply
• Existing Home Sales graphs

by Calculated Risk on 1/22/2013 10:00:00 AM

The NAR reports: Existing-Home Sales Slip in December, Prices Continue to Rise; 2012 Totals Up

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.0 percent to a seasonally adjusted annual rate of 4.94 million in December from a downwardly revised 4.99 million in November, but are 12.8 percent above the 4.38 million-unit level in December 2011.

The preliminary annual total for existing-home sales in 2012 was 4.65 million, up 9.2 percent from 4.26 million in 2011. It was the highest volume since 2007 when it reached 5.03 million and the strongest increase since 2004.
...
Total housing inventory at the end of December fell 8.5 percent to 1.82 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace, down from 4.8 months in November, and is the lowest housing supply since May of 2005 when it was 4.3 months, which was near the peak of the housing boom.

Listed inventory is 21.6 percent below a year ago when there was a 6.4-month supply. Raw unsold inventory is at the lowest level since January 2001 when there were 1.78 million homes on the market.

Click on graph for larger image.

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

Sales in December 2012 (4.94 million SAAR) were 1.0% lower than last month, and were 12.8% above the December 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 1.82 million in December down from 1.99 million in November. This is the lowest level of inventory since January 2001. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January.

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 21.6% year-over-year in December from December 2011. This is the 22nd consecutive month with a YoY decrease in inventory.

Months of supply declined to 4.4 months in December, the lowest level since May 2005.

This was below expectations of sales of 5.10 million, but right at Tom Lawler's forecast. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...

All current Existing Home Sales graphs

by Calculated Risk on 1/22/2013 08:38:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Moderated in December

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to +0.02 in December from +0.27 in November. Two of the four broad categories of indicators that make up the index decreased from November, and only two of the four categories made positive contributions to the index in December.

The index’s three-month moving average, CFNAI-MA3, edged up from –0.13 in November to –0.11 in December—its tenth consecutive reading below zero. December’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity "moderated" in December, and growth was slightly below trend (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 1/21/2013 09:16:00 PM

The Asian markets are mixed tonight with the Nikkei index up 0.3% and the Shanghai Composite index down slightly.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P and DOW futures are up slightly (fair value).

Oil prices have moved up recently with WTI futures at $95.41 per barrel and Brent at 111.88 per barrel. Gasoline prices are moving sideways.

Tuesday economic releases:
• At 8:30 AM ET, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for sales of 5.10 million on seasonally adjusted annual rate (SAAR) basis. Economist Tom Lawler estimates the NAR will report sales at 4.97 million SAAR.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for January. The consensus is for a a reading of 5 for this survey, unchanged from December (Above zero is expansion).