by Calculated Risk on 1/26/2013 09:30:00 AM

This was a light week for economic data.

The housing data - new and existing home sales - appeared a little weak in December, but the underlying details were solid.  For some some commentary on the reports see: Existing Home Sales: Another Solid Report and New Home Sales and Distressing Gap. The housing recovery is ongoing.

Other positive data included a sharp drop in the 4-week average of initial weekly unemployment claims, further expansion in the Architecture Billings Index, and an increase in the ATA trucking index.

On the negative side, both the Richomd and Kansas City Fed manufacturing indexes indicated contraction in January. However, the Markit Flash PMI (for manufacturing was fairly strong).

The NMHC quarterly apartment survey indicated some loosening in the apartment market suggesting the decline in the vacancy rate might slow or even stop (just one quarter of survey results though). This will be something to watch carefully (last graph below).

Next week will be very busy!

And here is a summary of last week in graphs:

• New Home Sales at 369,000 SAAR in December

Click on graph for larger image in graph gallery.

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 369 thousand. This was down from a revised 398 thousand SAAR in November (revised up from 377 thousand). Sales for September and October were revised up too.

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

Annual 2012 sales were up almost 20% compared to 2011:

"An estimated 367,000 new homes were sold in 2012. This is 19.9 percent above the 2011 figure of 306,000."

The second graph shows New Home Months of Supply.

The months of supply increased in December to 4.9 months from 4.5 months in November.

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 December was 151,000. This represents a supply of 4.9 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.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was just above the record low in December. The combined total of completed and under construction is also just above the record low since "under construction" is starting to increase.

This was below expectations of 388,000 sales in December, but with the strong upward revision to November sales (and smaller upward revisions to September and October) this was another solid report.

New Home Sales graphs
• Existing Home Sales in December: 4.94 million SAAR, 4.4 months of supply

Click on graph for larger image.

The NAR reports: Existing-Home Sales Slip in December, Prices Continue to Rise; 2012 Totals Up
This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in December 2012 (4.94 million SAAR) were 1.0% lower than last month, and were 12.8% above the December 2011 rate.

The next graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 1.82 million in December down from 1.99 million in November. This is the lowest level of inventory since January 2001. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January.

The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 21.6% year-over-year in December from December 2011. This is the 22nd consecutive month with a YoY decrease in inventory.

Months of supply declined to 4.4 months in December, the lowest level since May 2005.

This was below expectations of sales of 5.10 million, but right at Tom Lawler's forecast. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing.

All current Existing Home Sales graphs
• AIA: "Fifth Consecutive Month of Gains in Architecture Billings Index"

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

From AIA: Fifth Consecutive Month of Gains in Architecture Billings Index

This graph shows the Architecture Billings Index since 1996. The index was at 52.0 in December, down from 53.2 in November. Anything above 50 indicates expansion in demand for architects' services.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests some increase in CRE investment in 2013.

• Weekly Initial Unemployment Claims decline to 330,000

The DOL reports:

In the week ending January 19, the advance figure for seasonally adjusted initial claims was 330,000, a decrease of 5,000 from the previous week's unrevised figure of 335,000. The 4-week moving average was 351,750, a decrease of 8,250 from the previous week's revised average of 360,000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 351,750.

This is the lowest level for the 4-week average since early 2008. Note: Data for January has large seasonal adjustments - and can be very volatile, but this is still good news.

Weekly claims were below the 360,000 consensus forecast.

• NMHC Apartment Survey: Market Conditions Loosen Slightly


From the National Multi Housing Council (NMHC): Expansion Moderates for Apartment Markets in January

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. This quarterly decline followed eleven consecutive quarters with tighter market conditions.

The recent Reis data showed apartment vacancy rates fell in Q4 2012 to 4.5%, down from 4.7% in Q3 2012. As Obrinsky noted, markets are still tight, but this might suggest the vacancy rate will stop declining (caveat: this is just one quarter of survey data and the index might bounce back).

On supply: Even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be many more completions in 2013 than in 2012, increasing the supply.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010. This survey now suggests vacancy rates might stop falling - a possible significant market change - although apartment markets are still tight, so rents will probably continue to increase.

by Calculated Risk on 1/25/2013 09:20:00 PM

Zillow Forecast: November Case-Shiller Composite-20 Expected to Show 5.3% Increase from One Year Ago

On [Tuesday] January 29th, the Case-Shiller Composite Home Price Indices for November will be released. Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) will be up by 5.3 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will be up 4.5 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from October to November will be 0.3 percent for both the 20-City Composite and the 10-City Composite Home Price Index (SA).

To forecast the Case-Shiller indices we use past data from Case-Shiller, as well as the Zillow Home Value Index (ZHVI), which is available a month in advance of Case-Shiller numbers, paired with foreclosure re-sale numbers, which we also have available a month prior to Case-Shiller numbers. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices. The ZHVI does not include foreclosure re-sales and closed 2012 (December) with home values up 5.9% from year-ago levels. We expect home value appreciation to moderate in 2013, rising only 3.3 percent from December 2012 to December 2013. Further details on our forecast can be found here.

Zillow’s December 2012 data can be found here.

Zillow's forecasts for Case-Shiller have been pretty close.  Right now it looks like Case-Shiller will be over 6% in 2012 (through the December / Q4 reports to be released in February).

		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Nov 2011	151.41	150.49	138.19	137.37
Case-Shiller (last month)	Oct 2012	158.77	156.61	146.08	144.12
Zillow Nov Forecast	YoY	4.5%	4.5%	5.3%	5.3%
	MoM	-0.3%	0.3%	-0.4%	0.4%
Zillow Forecasts1		158.3	157.2	145.5	144.7
Current Post Bubble Low		146.46	149.40	134.07	136.70
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		8.1%	5.2%	8.5%	5.8%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 1/25/2013 05:46:00 PM

From Nick Timiraos at the WSJ: Six Housing Forecasters Who Got Things Right in 2012

A few analysts, of course, did offer housing forecasts at the beginning of the past year that turned out to be largely correct. What’s more: some of these analysts had also accurately forecast the housing sector’s slowdown as the market neared its peak in 2005 and 2006.

Here are the six forecasters.

On Tom Lawler:

Last year, he began writing about how Phoenix had hit a “bottom” in real estate, a prediction that became the genesis of this Page One story in the Journal last year. Nationally, Mr. Lawler called for gains of nearly 20% in new home sales to an annual rate of 365,000 [the Census Bureau reported 367,000 this morning] and gains of around 24% in total housing starts (preliminary estimates show they were up around 28%).

Thanks to Nick - I appreciate the mention!  (others mentioned include Ivy Zelman, Glenn Kelman, Joseph LaVorgna and John R. Talbott).

by Calculated Risk on 1/25/2013 03:43:00 PM

From HotelNewsNow.com: STR: US results for week ending 19 January

In year-over-year comparisons, occupancy was up 6.1 percent to 54.5 percent, average daily rate rose 5.6 percent to US$105.73 and revenue per available room increased 12.1 percent to US$57.57.

The 4-week average of the occupancy rate is back to normal levels.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2013, yellow is for 2012, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

The occupancy rate will continue to increase over the next few months as business travel picks up in the Spring. This is a key period for the hotel industry and the occupancy rate was still weak early in 2012 (the Summer and Fall occupancy rate was close to normal in 2012).

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 1/25/2013 11:58:00 AM

The Census Bureau reported a month-to-month decline in new home sales in December, but sales for the three previous months were revised up - so 2012 annual sales were at the expected level of 367 thousand (before further revisions).  This was an increase of 19.9% from 2011.

Note: I also expect sales for December will be revised up (almost all the recent revisions have been up).

This table shows the annual sales rate for the last eight years.

Annual New Home Sales
Year	Sales (000s)	Change in Sales
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	367	19.9%

Even with the sharp increase in sales, 2012 was the third lowest year for new home sales since the Census Bureau started tracking sales in 1963. The two lowest years were 2010 and 2011.

Note: For 2013, estimates are sales will increase to around 450 to 460 thousand, or another 22% to 25% on an annual basis.

My guess is sales will rise to around 800 thousand per year in a few years, but others think the next peak may be lower, perhaps closer to 700 thousand.  I think the demographics support close to 800 thousand per year, but even if sales only rise to the average of 664 thousand for the '80s and '90s, sales would still increase over 80% from the 2012 level.

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

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

Click on graph for larger image.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I don't expect much of an increase in existing home sales (distressed sales will slowly decline and be offset by more conventional sales). But I do expect this gap to 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.

Earlier:
• New Home Sales at 369,000 SAAR in December
• New Home Sales graphs

by Calculated Risk on 1/25/2013 10:00:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 369 thousand. This was down from a revised 398 thousand SAAR in November (revised up from 377 thousand). Sales for September and October were revised up too.

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

"Sales of new single-family houses in December 2012 were at a seasonally adjusted annual rate of 369,000 ... This is 7.3 percent below the revised November rate of 398,000, but is 8.8 percent above the December 2011 estimate of 339,000."

Click on graph for larger image in graph gallery.

Annual 2012 sales were up almost 20% compared to 2011:

"An estimated 367,000 new homes were sold in 2012. This is 19.9 percent above the 2011 figure of 306,000."

The second graph shows New Home Months of Supply.

The months of supply increased in December to 4.9 months from 4.5 months in November.

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 December was 151,000. This represents a supply of 4.9 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.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was just above the record low in December. The combined total of completed and under construction is also just above the record low since "under construction" is starting to increase.

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

In December 2012 (red column), 26 thousand new homes were sold (NSA). Last year only 24 thousand homes were sold in December. This was the sixth weakest December since this data has been tracked. The high for December was 87 thousand in 2005.

New home sales were at 367 thousand in 2012, up almost 20% from 307 thousand in 2011. Also sales are finally near the lows for previous recessions too.

This was below expectations of 388,000 sales in December, but with the strong upward revision to November sales (and smaller upward revisions to September and October) this was another solid report. I'll have more soon ...

New Home Sales graphs

by Calculated Risk on 1/25/2013 08:57:00 AM

From the WSJ: U.K. Economy Shrinks

The U.K. economy shrank in the final quarter of 2012, leaving Britain at risk of entering its third recession since 2008.

In its preliminary estimate, the Office for National Statistics said gross domestic product contracted 0.3% between October and December compared with the third quarter. On an annual basis economic output was flat.

"At the moment it remains too early to tell if the economy will triple-dip, but today's numbers have greatly increased the risk of a new recession and a downgrading of the U.K.'s triple-A credit rating," said Chris Williamson, chief economist at data providers Markit.

A triple dip?

However it appears employment is doing better than GDP in the U.K., from Izabella Kaminska at FT Alphaville: Mismeasuring UK GDP

by Calculated Risk on 1/24/2013 08:47:00 PM

First, from Michelle Meyer at Merrill Lynch: Tale of the missing homes

One of the key developments for the housing market in 2012 was a significant decline in inventory. The number of existing homes on the market for sale plunged 22% from the end of 2011, reaching the lowest level since January 2001. At the current sales pace, it now only takes 4.4 months to clear the stock of homes for sale. This is the slowest pace since the heart of the housing bubble in mid-2005. The reduction in supply has underpinned home prices and created a need for construction yet again.

The decline in supply can be explained by a few factors. Most significantly, the sharp decline in homebuilding translated to minimal growth in the housing stock. From 2009 to 2011, housing starts only slightly exceeded the pace of demolitions. The sluggish pace of new construction, of course, has a more direct impact on new inventory than it does on existing supply. Nonetheless, over time, it means fewer homes available for sale and hence slower turnover.

The latter – the decline in turnover – is the main reason for lean inventory of existing properties. This is a function of 1) falling home prices, which discouraged sellers; 2) tight credit, which reduced the number of move-up buyers; 3) negative equity that led to lock-in. As home prices increase and credit standards ease, some of this "pent-up" inventory will be unleashed. That said, if it is truly turnover – which means selling a property to buy a different one – it will also result in a gain in home sales. Months supply can therefore remain low.

Another source of inventory is from distressed properties – both current and previous. There is still a large pipeline of mortgages in foreclosure or seriously delinquent that needs to be processed. We think this will be gradual given the delays from states with a judicial foreclosure process. We can also see inventory from previously delinquent mortgages that had been purchased by investors. Many institutional investors bought distressed properties in bulk with the intention of renting them for a few years until prices appreciated. As prices rise, investors will look to take capital gains.

We advise some caution when interpreting the inventory data as there are big seasonal swings. Inventory typically falls at the end of the year and picks up again in Q1 in anticipation of the spring selling season. Extracting the seasonal factors from inventory shows that the biggest adjustments occur in December, when inventory is low, and August when inventory is high. We therefore expect a gain in inventory over Q1. This may very well be matched with a modest gain in sales in the spring, therefore making it a temporary rise in inventory.

CR note: Watching inventory - while not much more exciting than watching grass grow - will be key this year. My guess is inventory has bottomed, but even if there are further declines, the year-over-year declines will be much less in 2013 than in 2012.

Friday economic releases:
• At 10:00 AM ET, New Home Sales for December from the Census Bureau. The consensus is for an increase in sales to 388 thousand Seasonally Adjusted Annual Rate (SAAR) in December. This will put annual sales at around 367,000, an increase of around 20% from 2011.

by Calculated Risk on 1/24/2013 04:11:00 PM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by +0.8% (1.9 billion vehicle miles) for November 2012 as compared with November 2011. Travel for the month is estimated to be 238.8 billion vehicle miles.

Cumulative Travel for 2012 changed by +0.6% (16.7 billion vehicle miles). The Cumulative estimate for the year is 2,702.9 billion vehicle miles of travel.

The following graph shows the rolling 12 month total vehicle miles driven.

Traffic in the Northeast was down 0.9%, but there were gains in every other region. The rolling 12 month total is still moving sideways.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 60 months - 5 years - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Gasoline prices were up in November compared to November 2011. In November 2012, gasoline averaged of $3.52 per gallon according to the EIA. Last year, prices in November averaged $3.44 per gallon. 

However, as I've mentioned before, gasoline prices are just part of the story. The lack of growth in miles driven over the last 5 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take several more years before we see a new peak in miles driven.

by Calculated Risk on 1/24/2013 02:32:00 PM

From Edmunds.com: January Auto Sales Suggest the Good Times Will Keep Rolling in 2013, says Edmunds.com

Edmunds.com ... forecasts that 1,045,587 new cars and trucks will be sold in the U.S. in January for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.3 million light vehicles. The projected sales will be ... a 14.5 percent increase from January 2012.

“January’s numbers show that vehicle sales stayed strong, even after the holiday ads faded away and the replacement sales following Hurricane Sandy started to dry up,” says Edmunds.com Senior Analyst Jessica Caldwell. “These results certainly reinforce the exuberance and optimism that filled the air last week at the North American International Auto Show in Detroit.”

It looks like auto sales are starting 2013 fairly strong.

The following table shows annual light vehicle sales, and the change from the previous year.  Light vehicle sales have seen double digit growth for three consecutive years, but the growth rate will probably slow in 2013.

Light Vehicle Sales
	Sales (millions)	Annual Change
2005	16.9	0.5%
2006	16.5	-2.6%
2007	16.1	-2.5%
2008	13.2	-18.0%
2009	10.4	-21.2%
2010	11.6	11.1%
2011	12.7	10.2%
2012	14.4	13.4%