by Calculated Risk on 11/11/2014 08:11:00 AM

Note: This is an update to an earlier post.

Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And at the beginning of this year I argued house price increases would slow in 2014 because of the increase in inventory.

I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is slowing in some former distressed markets.  

The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento.  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It now appears the inventory build is slowing in these markets - and might even flatten or decline year-over-year soon in Las Vegas and Phoenix.

This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  But now that prices have flattened out - and there is plenty of inventory - potential sellers aren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings will not grow to the moon!

I still expect overall nationwide inventory to continue to increase, but this is something to watch.

Year-over-year Change in Active Inventory
Month	Las Vegas	Phoenix	Sacramento
Jan-13	-58.3%	-11.7%	-61.1%
Feb-13	-53.4%	-8.5%	-51.1%
Mar-13	-42.1%	-5.2%	-37.8%
Apr-13	-24.1%	-4.9%	-10.3%
May-13	-13.2%	-2.1%	5.3%
Jun-13	3.7%	-1.6%	18.3%
Jul-13	9.0%	-1.6%	54.3%
Aug-13	41.1%	2.4%	46.8%
Sep-13	60.5%	7.8%	77.3%
Oct-13	73.4%	15.7%	93.2%
Nov-13	77.4%	15.2%	56.8%
Dec-13	78.6%	20.9%	44.2%
Jan-14	96.2%	29.6%	96.3%
Feb-14	107.3%	37.7%	87.8%
Mar-14	127.9%	45.5%	71.2%
Apr-14	103.1%	48.8%	46.3%
May-14	100.6%	47.4%	83.7%
Jun-14	86.2%	43.1%	91.0%
Jul-14	55.2%	35.1%	68.0%
Aug-14	38.8%	21.9%	60.6%
Sep-14	29.5%	13.2%	50.9%
Oct-14	8.3%	5.7%	29.1%

by Calculated Risk on 11/10/2014 06:19:00 PM

About 5 years ago I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales).  For a few years, not much changed. But over the last 2+ years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In October 2014, 12.1% of all resales were distressed sales. This was up from 11.1% last month, and down from 16.7% in October 2013.  The slight increase was probably seasonal.

The percentage of REOs was at 6.1%, and the percentage of short sales was 6.0%.

Here are the statistics for October.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 29.1% year-over-year (YoY) in October.  This was the smallest YoY increase in June 2013, and the YoY increases have been trending down after peaking at close to 100%.

Cash buyers accounted for 20.6% of all sales, down from 23.9% in October 2013 (frequently investors).  This has been trending down, and it appears investors are becoming much less of a factor in Sacramento.

Total sales were down 0.8% from October 2013, and conventional equity sales were up 4.6% compared to the same month last year.

Summary: Distressed sales down sharply, cash buyers are down significantly, and inventory up significantly (but increases slowing).   This is what we'd expect to see in a healing market.  As I've noted before, we are seeing a similar pattern in other distressed areas.

by Calculated Risk on 11/10/2014 03:58:00 PM

From housing economist Tom Lawler: Toll Brothers: Net Orders Up, Orders Per Community Down Last Quarter; Deliveries Up, Partly on “Spike” in Lumpy “City Living”

From Toll:

"In anticipation of its webcast presentation and related investor meetings on November 13, 2014 at the UBS Building and Building Products 11th Annual CEO Conference in New York City, Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation's leading builder of luxury homes, today announced preliminary results for contracts, backlog and home building revenues for its fourth quarter and fiscal year ended October 31, 2014. These results are preliminary and unaudited. The Company will announce final totals when it releases fourth quarter and fiscal year earnings results on December 10, 2014 ...”

Here are some summary statistics for the quarter ended October 31, 2014 compared to the comparable quarter of 2013.

	Units			Average Sales Price
Quarter Ended:	10/2014	10/2013	% Chg	10/2014	10/2013	% Chg
Net Orders: Total	1,282	1,183	8.4%	$756,786	$709,214	6.7%
Traditional	1,234	1,136	8.6%	$720,989	$691,989	4.2%
City Living	48	37	29.7%	$1,677,083	$1,429,730	17.3%
Deliveries: Total	1,807	1,485	21.7%	$747,205	$703,367	6.2%
Traditional	1,684	1,460	15.3%	$702,732	$679,452	3.4%
City Living	123	25	392.0%	$1,356,098	$2,100,000	-35.4%
Net Orders/Community	5.01	5.17	-3.1%
Backlog As of:	10/2014	10/2013	% Chg	10/2014	10/2013	% Chg
Total	3,679	3,679	0.0%	$739,250	$714,732	3.4%
Traditional	3,535	3,481	1.6%	$708,487	$690,089	2.7%
City Living	144	198	-27.3%	$1,494,444	$1,147,980	30.2%

by Calculated Risk on 11/10/2014 01:08:00 PM

In November 2012, I was interviewed by Joe Weisenthal at Business Insider. One of my comments during our discussion on state and local governments was:

I wouldn’t be surprised if we see all of a sudden a report come out, “Hey, we’ve got a balanced budget in California.”

At the time that was way out of the consensus view. And a couple of months later California announced a balanced budget, see The California Budget Surplus

The situation has improved significantly since then. Here is the most recent update from California State Controller John Chiang: Controller Releases October Cash Update

State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in October 2014. Total revenues for the fourth month of Fiscal Year 2014-15 were $6.0 billion, coming in above Budget Act estimates by $662.2 million, or 12.3 percent.

For the fiscal year to date (July 1-October 31), total revenues reached $27.9 billion, beating estimates by $1.2 billion, or 4.5 percent.

“Four months into the fiscal year, California's coffers overflow by $1.2 billion. The news comes on the heels of two other positive developments: the vote to strengthen California's rainy-day fund through Proposition 2, and the credit upgrade that followed one day later," Chiang said.
emphasis added

This is just one state, but I've been expecting local and state governments (in the aggregate) to add to both GDP and employment in 2014 - and that has happened.  I expect this trend to continue in 2015.

by Calculated Risk on 11/10/2014 11:42:00 AM

Barry Ritholtz tweeted this morning: "Forcaster who was wrong about recession in 2010 sees recession in 2015" and included a link to this article from Bloomberg: Predictors of ’29 Crash See 65% Chance of 2015 Recession

“Clearly the direction of most of the recent global economic news suggests movement toward a 2015 downturn,” chairman David Levy told clients in an Oct. 23 edition of a monthly forecasting report ... Why the gloom? Levy argues the U.S. and many advanced economies still have balance-sheet excesses exposing them to renewed financial crisis. There is limited room for policy makers to reverse any slump, and low inflation risks tipping into deflation in many parts of the world.

Although there are geopolitical downside risks, and there is the potential for some disastrous political showdown in the U.S. (unlikely), I don't see a recession any time soon.

Of course I could be wrong, but currently I'm not on recession watch!

This reminds me of all those recession calls in 2011 and 2012.  As an example, ECRI called several recessions since August 2011 and all of their calls were wrong.

Part of the problem in forecasting recently is the sluggish recovery has ups and downs, and each down looks like the start of a recession to some models. Another problem is that negative news sells ... and there is an entire industry that sells doom and gloom.  It appears Levy is basing his call on the international showdown, but I doubt that will exert enough of a drag to take the U.S. into recession.

But this does give me a chance to post an update to the recession probability chart from FRED.

Click on graph for larger image in new window.

This graph is based on research by economists Chauvet and Piger. From Professor Piger's site:

"Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion."

This approach is useful for calling a recession in real time (of course, no one thinks the U.S. is in recession now).   Longer term, one of the best leading indicators - residential investment - is still increasing and is still very low, and suggests the recovery will continue.   I think a recession in 2015 is very unlikely.