by Calculated Risk on 5/19/2015 08:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Near Recent Highs Ahead of Fed

Mortgage rates continued higher at an unsettling pace today, following an exceptionally strong reading on Residential Construction data. This particular report doesn't historically cause a lot of rate volatility, but it comes at a time when markets are considering the Fed's next move and where any strong showing for the economy increases the odds of a rate hike.

Although the Fed Funds Rate doesn't correlate directly with mortgage rates, this particular rate hike (whenever it happens) will be a major symbolic shift away from the 'emergency' rate levels that haven't budged since 2008. As such, rates are likely to move higher across the board at first. Indeed, much of the recent move higher is due to market participants pricing in their expectations for that sort of big-picture shift. The fact that it coincides with a separate potential big-picture shift in European rates markets is only making things worse.

And yet, rates remain in historically good territory today. Additionally, they haven't been seeing nearly the same sort of freakouts that characterized 2013's taper tantrum. After getting down to 3.875% on Friday, the average lender is now back to quoting conventional 30yr fixed rates of 4.0% on top tier scenarios.
emphasis added

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

• During the day: The AIA's Architecture Billings Index for April (a leading indicator for commercial real estate).

• At 2:00 PM: the Fed will release the FOMC Minutes for the Meeting of April 28-29, 2015.

by Calculated Risk on 5/19/2015 04:15:00 PM

In addition to housing starts for April, the Census Bureau also released the Q1 "Started and Completed by Purpose of Construction" report today.

It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.

The quarterly report released today showed there were 112,000 single family starts, built for sale, in Q1 2015, and that was below the 129,000 new homes sold for the same quarter, so inventory decreased in Q1 (Using Not Seasonally Adjusted data for both starts and sales).

The first graph shows quarterly single family starts, built for sale and new home sales (NSA).

Click on graph for larger image.

In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. The difference on this graph is pretty small, but the builders were starting about 30,000 more homes per quarter than they were selling (speculative building), and the inventory of new homes soared to record levels. Inventory of under construction and completed new home sales peaked at 477,000 in Q3 2006.

In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory that they had built up in 2005 and 2006.

Now it looks like builders are generally starting about the same number of homes that they are selling, and the inventory of under construction and completed new home sales is still very low.  

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations, but it does suggest the builders are keeping inventories under control.

The second graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Single family starts built for sale were up about 9% compared to Q1 2014.

Owner built starts were down 4% year-over-year. And condos built for sale are just above the record low.

The 'units built for rent' has increased significantly over the last few years, but was only 1% compared to Q1 2014.

by Calculated Risk on 5/19/2015 01:27:00 PM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For some time, 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 April, 11.9% of all resales were distressed sales. This was down from 12.4% last month, and down from 16.3% in April 2014. Since distressed sales happen year round, but conventional sales decline in December and January, the percent of distressed sales bumps up in the winter (seasonal).

The percentage of REOs was at 6.5%, and the percentage of short sales was 5.5%.

Here are the statistics.

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 (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 26.0% year-over-year (YoY) in April.  In general the YoY increases have been trending down after peaking at close to 100%, however the YoY increase was slightly larger in April than in March.

Cash buyers accounted for 16.4% of all sales (frequently investors).

Total sales were up 8.9% from April 2014, and conventional equity sales were up 14.6% compared to the same month last year.

Summary: This data suggests a healing market with fewer distressed sales, more equity sales, and less investor buying.

by Calculated Risk on 5/19/2015 11:15:00 AM

So much for the doom and gloom of February and March.

Total housing starts in April were solid and well above expectations - and at the highest level since 2007.

Single family starts were at the highest level since January 2008.

This first graph shows the month to month comparison between 2014 (blue) and 2015 (red).

Click on graph for larger image.

Even with weak housing starts in February and March, total starts are still running 5.5% ahead of 2014 through April.

Single family starts are running 7.6% ahead of 2014 through April.

Starts for 5+ units are only up 1% for the first four months compared to last year.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).

Note that the blue line (multi-family starts) might be starting to move more sideways.

I think most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

A solid report.

by Calculated Risk on 5/19/2015 08:43:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,135,000. This is 20.2 percent above the revised March estimate of 944,000 and is 9.2 percent above the April 2014 rate of 1,039,000.

Single-family housing starts in April were at a rate of 733,000; this is 16.7 percent above the revised March figure of 628,000. The April rate for units in buildings with five units or more was 389,000.
emphasis added

Building Permits:
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,143,000. This is 10.1 percent above the revised March rate of 1,038,000 and is 6.4 percent above the April 2014 estimate ...

Single-family authorizations in April were at a rate of 666,000; this is 3.7 percent above the revised March figure of 642,000. Authorizations of units in buildings with five units or more were at a rate of 444,000 in April.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased in April.  Multi-family starts are up 9.2% year-over-year.

Single-family starts (blue) increased in April and are up about 14.7% year-over-year.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

This was well above expectations of 1.029 million starts in April.  Overall this was a solid report with upward revisions to prior months. I'll have more later ...