by Calculated Risk on 2/25/2015 03:16:00 PM

Earlier: New Home Sales at 481,000 Annual Rate in January, Highest January since 2008

Here is an updated table of new home sales since 2000 and the change from the previous year, including the revisions for the last few months.  Sales in 2014 were only up 1.9% from 2013.

New Home Sales (000s)
Year	Sales	Change
2000	877	-0.3%
2001	908	3.5%
2002	973	7.2%
2003	1,086	11.6%
2004	1,203	10.8%
2005	1,283	6.7%
2006	1,051	-18.1%
2007	776	-26.2%
2008	485	-37.5%
2009	375	-22.7%
2010	323	-13.9%
2011	306	-5.3%
2012	368	20.3%
2013	429	16.6%
2014	437	1.9%

There are two ways to look at 2014: 1) sales were below expectations, or 2) this just means more growth over the next several years!  Both are correct, and what matters now is the present (sales are picking up), and the future (still bright).

It is important not to be influenced too much by one month of data, but if sales averaged the January rate in 2015 of 481 thousand - just moved sideways - then sales for 2015 would be up 10.1% over 2014.

Based on the low level of sales, more lots coming available, changing builder designs and demographics, I expect sales to increase over the next several years.

As I noted last month, it is important to remember that demographics is a slow moving - but unstoppable - force!

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.  One major reason for that optimism was demographics - a large cohort was moving into the renting age group.

Now demographics are slowly becoming more favorable for home buying.

Click on graph for larger image.

This graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts - and new home sales - to continue to increase in coming years.

There are several reasons to expect a return to double digit (or close) new home sales growth in 2015: Builders bringing lower priced homes on the market, more finished lots available, looser credit and demographics (as discussed above).  The housing recovery is ongoing.

And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through January 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to mostly move sideways (distressed sales will continue to decline and be offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 2/25/2015 12:46:00 PM

According to Black Knight's First Look report for January, the percent of loans delinquent decreased 1% in January compared to December, and declined 11% year-over-year.

The percent of loans in the foreclosure process declined slightly in January and were down about 31% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.56% in January, down from 5.64% in December.  The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined slightly in January and remained at 1.61%.

The number of delinquent properties, but not in foreclosure, is down 327,000 properties year-over-year, and the number of properties in the foreclosure process is down 360,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for February in March.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Jan 2015	Dec 2014	Jan 2014	Jan 2013
Delinquent	5.56%	5.64%	6.27%	7.03%
In Foreclosure	1.61%	1.61%	2.35%	3.41%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,701,000	1,736,000	1,851,000	1,974,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,112,000	1,132,000	1,289,000	1,531,000
Number of properties in foreclosure pre-sale inventory:	815,000	820,000	1,175,000	1,703,000
Total Properties	3,628,000	3,688,000	4,315,000	5,208,000

by Calculated Risk on 2/25/2015 10:00:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 481 thousand.

November sales were revised up from 431 thousand to 446 thousand, and December sales were revised up from 481 thousand to 482 thousand.

"Sales of new single-family houses in January 2015 were at a seasonally adjusted annual rate of 481,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent below the revised December rate of 482,000, but is 5.3 percent above the January 2014 estimate of 457,000."

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the previous two years, new home sales are barely above the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply was unchanged in January at 5.4 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

"The seasonally adjusted estimate of new houses for sale at the end of January was 218,000. This represents a supply of 5.4 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In January 2015 (red column), 36 thousand new homes were sold (NSA). Last year 33 thousand homes were sold in January.  This is the highest for January since 2008.

The high for January was 92 thousand in 2005, and the low for January was 21 thousand in 2011.

This was above expectations of 471,000 sales in January, and is a decent start to 2015.  I'll have more later today.

by Calculated Risk on 2/25/2015 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 20, 2015. This week’s results include an adjustment to account for the Presidents’ Day holiday. ...

The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.99 percent from 3.93 percent, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

2014 was the lowest year for refinance activity since year 2000.

2015 will probably see more refinance activity than in 2014, but not a large refinance boom.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down 2% from a year ago.

by Calculated Risk on 2/24/2015 08:26:00 PM

The following paragraph from Fed Chair Janet Yellen's testimony today seems to suggest "patient" will be dropped from the FOMC statement at the March 17-18 meeting. Sentence by sentence:

The FOMC's assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings.

That just repeated the current understanding. If the FOMC wants to have the option to raise rates in June, they would most likely drop "patient" from the statement in March (June is the second meeting after March).

If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance.

Yes, the FOMC needs to drop "patient" before they move to a meeting-by-meeting basis.

However, it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings.

This was the clarification today. Although "patient" probably means no hike for at least two meetings, dropping "patient" does not mean a rate hike is guaranteed two meetings later - just that a hike may be considered based on incoming data (employment and inflation).

Right now I expect the FOMC to drop patient at the next meeting.

Wednesday:
• At 7:00 AM ET, Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, New Home Sales for January from the Census Bureau. The consensus is for a decrease in sales to 471 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 481 thousand in December.

• Also at 10:00 AM, Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the House Financial Services Committee, Washington, D.C. (Report will be a repeat, plus Q&A).