by Calculated Risk on 1/23/2013 08:00:00 PM

From Alejandro Lazo and Andrew Khouri at the LA Times: Number of homes entering foreclosure drops 22.1% to six-year low

California's foreclosure crisis eased considerably during the final quarter of last year, with the number of homes entering foreclosure dropping to a six-year low.

The real estate research firm DataQuick reported a 22.1% decline in default notices during the final three months of 2012 compared with the previous quarter — and a 37.9% drop from a year earlier. A total of 38,212 default notices were logged on California houses and condominiums last quarter, the lowest number since the final quarter of 2006. A default notice is the first formal step in the state's foreclosure process.

Here is the DataQuick release: California: Foreclosure Starts Lowest Since 2006

Note: California is a non-judicial foreclosure state, and the non-judicial states are recovering quicker than many judicial states (the courts take time).

Thursday economic releases:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 360 thousand from 335 thousand last week.

• At 9:00 AM, The Markit US PMI Manufacturing Index Flash. This release might provide hints about the ISM PMI for January. This consensus is for a decrease to 54.0 from 54.2 in December. All of the regional surveys have been week so far, so this may decline more than the consensus.

• At 10:00 AM, the Conference Board Leading Indicators for December. The consensus is for a 0.4% increase in this index.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for January will be released. The consensus is for a reading of 2, up from -2 in December (below zero is contraction).

by Calculated Risk on 1/23/2013 03:52:00 PM

Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in December. This shows distressed sales are down just about everywhere, and there are more short sales than foreclosures in most areas (Minneapolis and Colorado are exceptions.

Look at the right two columns in the table below (Total "Distressed" Share for Dec 2012 compared to Dec 2011). In every area that reports distressed sales, the share of distressed sales is down year-over-year - and down significantly in most areas. 

Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for Dec 2012 to Dec 2011. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by a new foreclosure law).  There will probably be an increase in foreclosure sales in some judicial states in 2013, but overall foreclosures will probably be down this year.

Also there has been a shift from foreclosures to short sales. In most areas, short sales now far out number foreclosures.

As a follow-up to the previous post, imagine that the number of total existing home sales doesn't change over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines 20%, and conventional sales increase to make up the difference. That would be a positive sign - and that is what appears to be happening.

Comments from Tom Lawler: Below is an updated “distressed sales” share report for December (or, for Colorado and Columbus, Ohio, Q4).  Data are based on releases by realtor associations/MLS, save for California and Memphis, which are based on property records (and for California, Dataquick’s estimates for short sales).

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Dec	11-Dec	12-Dec	11-Dec	12-Dec	11-Dec
Las Vegas	45.8%	26.6%	9.5%	46.0%	55.3%	72.6%
Reno	47.0%	35.0%	10.0%	24.0%	57.0%	59.0%
Phoenix	27.2%	32.2%	12.2%	27.6%	39.4%	59.8%
Sacramento	40.0%	30.2%	11.5%	33.9%	51.5%	64.1%
Minneapolis	12.3%	14.6%	26.6%	35.8%	38.9%	50.4%
Mid-Atlantic (MRIS)	13.0%	14.3%	9.7%	15.4%	22.7%	29.7%
Orlando	30.2%	36.6%	20.4%	22.2%	50.6%	58.8%
California (DQ)*	25.3%	25.5%	15.5%	33.9%	40.8%	59.4%
So. California (DQ)*	25.6%	26.0%	14.8%	32.4%	40.4%	58.4%
Lee County, FL***	18.9%	20.4%	17.2%	24.1%	36.1%	44.5%
Florida SF	21.6%	25.1%	16.9%	20.1%	38.6%	45.2%
Florida C/TH	16.6%	23.4%	14.7%	18.7%	31.3%	42.1%
Northeast Florida					43.0%	49.8%
Chicago					44.3%	45.8%
Charlotte					15.6%	17.7%
Colorado**	7.3%	7.6%	12.5%	20.6%	19.8%	28.2%
Columbus OH**					27.8%	38.7%
Atlanta			26.0%	47.0%
Houston			14.2%	20.5%
Memphis*			26.9%	30.2%
Birmingham AL			27.8%	34.0%
*share of existing home sales, based on property records
**Third Quarter
*** SF only

by Calculated Risk on 1/23/2013 02:01:00 PM

The reporting on the Existing Home sales report was pretty negative yesterday even though I thought it was a solid report. And some of the positive reports were about prices - the NAR reported "The national median existing-home price for all housing types was $180,800 in December, which is 11.5 percent above December 2011" - and I completely ignore the median price.  What gives?

First, on prices, the median is impacted by the mix, and the mix changed in 2012 with fewer low end foreclosures.  I think the median price should be ignored during periods when the mix is changing (with all the repeat sales indexes available, I mostly ignore median prices all the time).

And on sales, the lead for many articles was that seasonally adjusted sales declined in December compared to November, and that sales were below the consensus forecast.   There were some suggestions that this called into question the "housing recovery".   Nonsense.

What is a "housing recovery"?  There are really two recoveries: House prices and residential investment.  Most people - homeowners and potential buyers - focus on prices, and for prices we should use the repeat sales indexes, and not the NAR median price (repeat sales indexes include Case-Shiller, CoreLogic, etc).  What matters in the NAR report for prices is inventory and months-of-supply.  And inventory is at the lowest level since January 2001, and months-of-supply fell to 4.4 months - the lowest since May 2005.

But for GDP and jobs, the key is what the Bureau of Economic Analysis (BEA) calls "residential investment" (RI) .  For existing homes, only the broker's commission is part of GDP, but for new homes the entire sales price is part of GDP.  There are some spillover effects from home sales (furniture, landscapting, etc), but those aren't included in RI.

Click on graph for larger image.

This graph shows the components for RI as a percent of GDP. According to the BEA, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Right now home improvement is the largest category, but new single family structures will be the largest component soon.  Broker's commissions is usually the third largest category and is relatively small compared to single family investment and home improvement.

So if existing home sales decline there is a minor impact on RI and GDP.  When we talk about the "housing recovery" for jobs and GDP, existing home sales are mostly irrelevant - the focus should be on new home sales, housing starts and home improvement.

On home improvement, from the NAHB: Remodeling Market Remains Strong in the Fourth Quarter

The Remodeling Market Index (RMI) reached 55 in the fourth quarter of 2012, increasing five points from the previous quarter, according to the National Association of Home Builders (NAHB). This is the highest reading since the first quarter 2004.

An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.

“Remodelers are optimistic about the outlook for slow and steady market growth in the new year,” said 2013 NAHB Remodelers Chairman Bill Shaw, GMR, GMB, CGP, a remodeler from Houston. “Professional remodelers reported more work from large and small projects as well as overall home repair.”

Finally, as I mentioned yesterday, as the number of distressed sales decline, the number of total sales might decline too - but we need to look at the number of conventional sales - and conventional sales have been increasing.  That is probably a sign of a healing market.

I don't expect much of an increase in existing home sales in 2013, and I wouldn't be surprised by a decline depending on the number of foreclosures this year. But I think the housing recovery will remain fairly strong with new home sales and housing starts up sharply again this year.

by Calculated Risk on 1/23/2013 10:55:00 AM

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

From AIA: Fifth Consecutive Month of Gains in Architecture Billings Index

Business conditions at architecture firms continue to improve. As a leading economic indicator of construction activity, the Architecture Billings Index (ABI) reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 52.0, down from the mark of 53.2 in November. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.4, down slightly from the 59.6 mark of the previous month.

“While it’s not an across the board recovery, we are hearing a much more positive outlook in terms of demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Moving into 2013 we are expecting this trend to continue and conditions improve at a slow and steady rate. That said, we remain concerned that continued uncertainty over the outcomes of budget sequestration and the debt ceiling could impact further economic growth.”

• Regional averages: Midwest (55.7), Northeast (53.1), South (51.2), West (49.6)

• Sector index breakdown: commercial / industrial (53.4), mixed practice (53.0), institutional (50.9), multi-family residential (50.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 52.0 in December, down from 53.2 in November. Anything above 50 indicates expansion in demand for architects' services.

Every building sector is now expanding and new project inquiries are strongly positive. 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. This suggests some increase in CRE investment in 2013.

by Calculated Risk on 1/23/2013 10:09:00 AM

From the Federal Housing Finance Agency (FHFA): FHFA House Price Index Up 0.6 Percent in November

U.S. house prices rose 0.6 percent on a seasonally adjusted basis from October to November, according to the Federal Housing Finance Agency’s monthly House Price Index (HPI). The previously reported 0.5 percent increase in October was revised upward to a 0.6 percent increase. For the 12 months ending in November, U.S. prices rose 5.6 percent.

This monthly index is for loans owned or guaranteed by Fannie or Freddie.

It appears price were up around 6% in 2012 on the repeat sales indexes (Case-Shiller, Corelogic, etc).   The Case-Shiller index for November will be released next Tuesday, January 29th.