by Calculated Risk on 4/20/2011 02:16:00 PM

Moody's reported today that the Moody’s/REAL All Property Type Aggregate Index declined 3.3% in February. Note: Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales and there are a large percentage of distressed sales - and that can impact prices and make the index very volatile.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

The Moody’s/REAL Commercial Property Price Index fell 3.3 percent from January and 4.9 percent from a year earlier. It’s up 0.8 percent from an eight-year low in August, Moody’s said in a statement today.

Click on graph for larger image in graph gallery.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are down 4.9% from a year ago and down about 44.7% from the peak in 2007. Prices are just above the post-bubble low last August - and about at the levels of 2002.

Earlier:
• Existing Home Inventory decreases 2.1% Year over Year
• March Existing Home Sales: 5.10 million SAAR, 8.4 months of supply

by Calculated Risk on 4/20/2011 11:30:00 AM

Earlier the NAR released the existing home sales data for March; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in graph gallery.

Although inventory increased from February to March (as usual), inventory decreased 2.1% year-over-year in March (from March 2010). This is the second consecutive month with a small YoY decrease in inventory.

Inventory should increase over the next few months (the normal seasonal pattern), and the YoY change is something to watch closely this year. Inventory is already very high, and any YoY increase in inventory would put more downward pressure on house prices.

The second graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns in January, February and March are for 2011.

Sales NSA are below the tax credit boosted level of sales in March 2010, but above the level of March sales in 2008 and 2009.

The bottom line: March is the beginning of the selling season, and sales activity (so far) is above the 2008 and 2009 levels. Much of this activity is from all cash-sales (both investors and homebuyers). The NAR reported "All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010."

The NAR also mentioned: "Distressed homes – typically sold at discounts in the vicinity of 20 percent – accounted for a 40 percent market share in March, up from 39 percent in February and 35 percent in March 2010." A higher percentage of distressed sales probably means lower prices - and we should expect the repeat sales indexes to show further price declines in March.

The year-over-year decline in inventory will put less downward pressure on house prices, although the level is still very high (and this is just the visible inventory).

Note: The Case-Shiller price index will be released next Tuesday (April 26th), and is released with a significant lag. The Case-Shiller report will be for February (average of three months) - and the NAR report, with the high level of distressed sales and cash buyers, suggests further price declines in March.

by Calculated Risk on 4/20/2011 10:00:00 AM

The NAR reports: Existing-Home Sales Rise in March

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010.
...
All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010.
...
Total housing inventory at the end of March rose 1.5 percent to 3.55 million existing homes available for sale, which represents an 8.4-month supply4 at the current sales pace, compared with a 8.5-month supply in February.

Click on graph for larger image in new window.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in March 2011 (5.10 million SAAR) were 3.7% higher than last month, and were 6.3% lower than March 2010.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.549 million in March from 3.498 million in February.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory peaking in the summer and declining in the fall and winter. Inventory will probably increase significantly over the next several months.

The last graph shows the 'months of supply' metric.

Months of supply decreased to 8.4 months in March, down from 8.5 months in February. The months of supply will probably increase over the next few months as inventory increases. This is higher than normal.

Special Note: Back in January, I noted that it appeared the NAR had overestimated sales by 5% or so in 2007, and that the errors had increased since then (perhaps 10% or 15% or more in 2009 and 2010). I reported in January that the NAR was working on benchmarking existing home sales for earlier years with other industry data, and I expected "this effort will lead to significant downward revisions to previously reported sales". The numbers reported today were estimated using the old method and will probably be revised down significantly, but they are still useful on a month-to-month basis.

These sales numbers were above the consensus of 5.0 million SAAR, and are about what I expected (Lawler's forecast was 5.08 million). I'll have more soon.

by Calculated Risk on 4/20/2011 07:37:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 2.7 percent from the previous week. The seasonally adjusted Purchase Index increased 10.0 percent to its highest level since December 3, 2010, driven largely by a 17.6 percent increase in Government purchase applications.
...
“Purchase application volume jumped last week largely due to another sharp increase in applications for government loans. Borrowers were likely motivated to apply for loans before the scheduled increase in FHA insurance premiums,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance activity increased somewhat, as rates dropped to their lowest level in a month towards the end of the week.”
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.83 percent from 4.98 percent, with points increasing to 1.07 from 0.93 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in graph gallery.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Although this is the highest level of purchase activity this year, the level is still low compared to recent years.

by Calculated Risk on 4/20/2011 12:01:00 AM

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

From Reuters: US architecture billings index flat in March -AIA

The Architecture Billings Index slipped 0.1 point to 50.5 in March, according to the American institute of Architects.
...
"Demand is not falling back into the negative territory, but also not exhibiting the same pace of increases seen at the end of 2010," said AIA Chief Economist Kermit Baker.

Click on graph for larger image in graph gallery.

This graph shows the Architecture Billings Index since 1996. The index showed billings increased slightly in March (index at 50.5, anything above indicates an increase in billings).

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, 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. So this indicator suggests the drag from CRE investment will end mid-year 2011 or so - but there won't be a strong increase in investment.

by Calculated Risk on 4/19/2011 06:30:00 PM

A few thoughts looking out a few years ...

• Residential investment (RI) is the best leading indicator for the economy. This isn't perfect - nothing is - but RI is usually a strong leading indicator for the business cycle. The slump in RI helped me call the 2007 recession correctly, and the lack of a recovery in residential investment is a key reason the recovery has been sluggish and choppy so far. Note: Residential investment, according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

• In 2011, residential investment will make a positive contribution to the economy for the first time since 2005. The five years of drag on GDP from RI (2006 through 2010) is the longest period on record, breaking the previous record of four years from 1930 to 1933 (yeah, the Great Depression). The positive contribution this year will mostly be due to a pickup in multifamily construction (apartments) and in home improvement. However single family housing starts will continue to struggle.

• This positive contribution from residential investment suggests the economy will continue to grow all year and also in 2012 (point 1: RI is best leading indicator). There are plenty of downside risks, but I expect the expansion to continue.

• A record low number of housing units will be added to the housing stock this year. With more jobs, and more household formation in 2011, the number of excess housing units will be reduced substantially this year – perhaps by 600,000 to 700,000 units (or more).

Recently economist Tom Lawler took a long look at the 2010 Census data, and estimated there were about 2 to 3 million excess vacant housing units as of April 1, 2010. With the record low number of housing units delivered last year, Lawler estimated that as of April 1, 2011 the excess “would be somewhere in the range of 1.45 to 2.45 million units – with the latter almost certainly too high”. With another record low number of units added to the housing stock this year, the excess will be in the 750 thousand to 1.7 million range next April (with the latter “certainly too high"). This suggests the excess supply will be gone sometime between early 2014 and 2016.

As the excess supply is absorbed, new residential investment will increase in some areas – and will probably return to normal sometime in 2014 - or as late as 2017 - depending on the actual number of excess vacant housing units. I'm leaning more towards 2015 or 2016.

• “Normal” for housing starts will be the rate of household formation (probably averaging around 1.1 million per year in 2015), plus the net number of 2nd homes purchased, plus the number of demolitions. I think the 2nd home markets will be slow to recover, so "normal" will probably be around 1.3 million housing starts in 2015 or 2016 or 2017 (after the excess supply is absorbed) – up sharply from the current rate of around 550 thousand. For new home sales, normal will probably be in the 800 thousand to 850 thousand range – far above the recent 250 thousand to 300 thousand range, but also far below the 1.2 to 1.3 million range in 2004 and 2005.

• Unfortunately it is hard to pin down the timing better right now because the number of excess vacant housing units is uncertain. My guess is housing starts will return to "normal" in 2015 or 2016.