by Calculated Risk on 8/04/2015 12:05:00 PM

A few excerpts from a research note by Goldman Sachs economists David Mericle and Karen Reichgott: What's Keeping the Kids at Their Parents' Homes?

The share of 18-34 year-olds living with their parents rose about four percentage points (pp) during the recession and its aftermath, resulting in a few million extra "kids in the basement." This group accounts for the bulk of the recent shortfall in household formation and represents a potentially large pool of pent-up demand for homebuilding. While the share of young people living with their parents began to decline in 2014, the decline has stalled over the last six months ...

To what extent do current labor market conditions explain the elevated rate of young people living with their parents? ... We find that this current labor force status "composition effect" accounts for about 1.3pp, or roughly one-third of the "excess" kids living with their parents.
...
What accounts for the rest? Part of the explanation is likely that the legacy of the recession wears off only gradually ...

Three other factors might also have played a role. First, researchers at the New York Fed and the Fed Board have found evidence that rising student debt and poor credit scores have contributed to the elevated share of young people living with their parents. Second, the median age at first marriage has increased at a faster than usual rate since 2007 ... Third ... rent-to-income ratios are at historic highs, especially for young people. The future trajectory of these three factors is less clear, suggesting that the share of 18-34 year-olds living at home might not fully return to pre-recession rates.
...
What are the implications for the long-run homebuilding outlook? The pool of "excess" young people living at home is so large that even if only two-thirds ever move out and even if this process takes another decade, trend household formation would likely fall near the upper end of our 1.2-1.3mn forecast range. Combined with a 300k annual rate of demolitions, such a scenario would imply a trend demand for new housing units of about 1.6mn per year, well above the current sub-1.2mn run rate of housing starts. As a result, we continue to see plenty of upside for residential investment.

by Calculated Risk on 8/04/2015 09:11:00 AM

Notes: This CoreLogic House Price Index report is for June. The recent Case-Shiller index release was for May. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports National Home Prices Rose by 6.5 Percent Year Over Year in June 2015

CoreLogic® ... today released its June 2015 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased by 6.5 percent in June 2015 compared with June 2014. This change represents 40 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased by 1.7 percent in June 2015 compared with May 2015.

Including distressed sales, 35 states and the District of Columbia were at or within 10 percent of their peak prices in June 2015. Fifteen states and the District of Columbia reached new price peaks—Alaska, Arkansas, Colorado, Hawaii, Iowa, Kentucky, Nebraska, New York, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee, Texas and Wyoming. The CoreLogic HPI begins in January 1976.

Excluding distressed sales, home prices increased by 6.4 percent in June 2015 compared with June 2014 and increased by 1.4 percent month over month compared with May 2015. ...
emphasis added

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.7% in June (NSA), and is up 6.5% over the last year.

This index is not seasonally adjusted, and this was a solid month-to-month increase.


The second graph is from CoreLogic. The year-over-year comparison has been positive for forty consecutive months.

The YoY increase had been moving sideways over most of the last year, but has picked up a little recently.

by Calculated Risk on 8/03/2015 05:42:00 PM

From the Federal Reserve: The July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices

Regarding loans to businesses, the July survey results indicated that, on balance, banks reported little change in their standards on commercial and industrial (C&I) loans in the second quarter of 2015. In addition, banks reported having eased some loan terms, such as spreads and covenants, especially for larger firms on net. Meanwhile, survey respondents also reported that standards on commercial real estate (CRE) loans remained unchanged on balance. On the demand side, modest to moderate net fractions of banks indicated having experienced stronger demand for C&I and CRE loans during the second quarter.

Regarding loans to households, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months on net. Most banks reported no change in standards and terms on consumer loans. On the demand side, moderate to large net fractions of banks reported stronger demand across most categories of home-purchase loans. Similarly, respondents experienced stronger demand for auto and credit card loans on net.
emphasis added

Click on graph for larger image.

Here are some charts from the Fed.

This graph shows the change in lending standards and for CRE (commercial real estate) loans.

Mostly standards were unchanged for various categories of CRE (right half of graph).

The second graph shows the change in demand for CRE loans.

Banks are seeing a pickup in demand for all categories of CRE - including multi-family.

This suggests that we will see further increases in commercial real estate development.

Also the banks are easing credit a little for residential mortgages  (see graph on page 3).

by Calculated Risk on 8/03/2015 02:13:00 PM

Based on a WardsAuto estimate, light vehicle sales were at a 17.5 million SAAR in June. That is up 6.4% from July 2014, and up 3.3% from the 17.0 million annual sales rate last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for July (red, light vehicle sales of 17.5 million SAAR from WardsAuto).

This was above to the consensus forecast of 17.2 million SAAR (seasonally adjusted annual rate).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was another strong month for auto sales. It appears 2015 will be the best year for light vehicle sales since 2001.

by Calculated Risk on 8/03/2015 10:16:00 AM

The Census Bureau reported that overall construction spending increased slightly in June:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during June 2015 was estimated at a seasonally adjusted annual rate of $1,064.6 billion, 0.1 percent above the revised May estimate of $1,063.5 billion. The June figure is 12.0 percent above the June 2014 estimate of $950.3 billion.

Private spending decreased and public spending increased:

Spending on private construction was at a seasonally adjusted annual rate of $766.4 billion, 0.5 percent below the revised May estimate of $770.0 billion ...

In June, the estimated seasonally adjusted annual rate of public construction spending was $298.2 billion, 1.6 percent above the revised May estimate of $293.5 billion.
emphasis added

Note: Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for private lodging is up 42% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 16% year-over-year.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been increasing recently, and is 45% below the bubble peak.

Non-residential spending is only 5% below the peak in January 2008 (nominal dollars).

Public construction spending is now 8% below the peak in March 2009 and about 13% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 13%. Non-residential spending is up 15% year-over-year. Public spending is up 8% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has also increasing after several years of austerity.

This was below the consensus forecast of a 0.6% increase, however spending for April and May was revised up significantly.  Overall, a solid report.