by Calculated Risk on 4/23/2014 11:23:00 AM

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

From AIA: Architecture Billings Index Mired in Slowdown

Following a modest two-month recovery in the level of demand for design services, the Architecture Billings Index (ABI) again turned negative last month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI score was 48.8, down sharply from a mark of 50.7 in February. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.9, up from the reading of 56.8 the previous month.

“This protracted softening in demand for design services is a bit of a surprise given the overall strength of the market the last year and a half,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Hopefully, some of this can be attributed to severe weather conditions over this past winter. We will have a better sense if there is a reason for more serious concern over the next couple of months.”

Regional averages: South (52.8),West (50.7), Northeast (46.8), Midwest (46.6) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.8 in March, down from 50.7 in February. Anything below 50 indicates contraction in demand for architects' services.  This index has indicated expansion during 16 of the last 20 months.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, 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.  Even when positive, this index was not as strong as during the '90s - or during the bubble years of 2004 through 2006 - because the vacancy rates are still high for many CRE sectors.  However, the readings over the last year and a half suggest some increase in CRE investment in 2014.

by Calculated Risk on 4/23/2014 10:00:00 AM

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 384 thousand.

February sales were revised up from 440 thousand to 449 thousand, and January sales were revised up from 455 thousand to 470 thousand.  

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 March 2014 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 14.5 percent below the revised February rate of 449,000 and is 13.3 percent below the March 2013 estimate of 443,000.

Click on graph for larger image.


Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply increased in March to 6.0 months from 5.0 months in February.

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 March was 193,000. This represents a supply of 6.0 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 is still low, but moving up. The combined total of completed and under construction is also very low.

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

In March 2014 (red column), 36 thousand new homes were sold (NSA). Last year 41 thousand homes were also sold in March. The high for March was 127 thousand in 2005, and the low for March was 28 thousand in 2011.



This was well below expectations of 455,000 sales in March.

I'll have more later today . 

by Calculated Risk on 4/23/2014 07:01:00 AM

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

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 18, 2014. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 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 4.49 percent from 4.47 percent, with points increasing to 0.50 from 0.32 (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.

The refinance index is down 74% from the levels in May 2013 (almost one year ago).

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 18% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.

by Calculated Risk on 4/22/2014 08:35:00 PM

From Catherine Rampell at the WaPo: Americans think owning a home is better for them than it is

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

Yet Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset.

First, as I've pointed out several times, Shiller used several estimates for changes in house prices. As an example, for the decade prior to 1987 (when the Case-Shiller index started), Shiller used the FHFA index.  However this index was for a small percentage of loans. If he had used CoreLogic instead, the real return over the period Rampell analyzed would have been closer to 1.5% (much higher than 0.3%).

Second, Rampell assumes the buyer paid cash - a much better model would have assumed 10% down, and would have had the buyer refinance every few years as mortgage rates declined. This also means there would be far less invested in the S&P500 than Rampell assumed.

Third, a young person might be happy with a $400 apartment in 1982, but I doubt they'd want to live in the equivalent apartment for 30+ years (marriage, raise kids, etc.).  The model should assume a move-up buyer and renter at certain points.

I'm confident a more complicated  and thorough model would produce the opposite result over the period in question.

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

• At 10:00 AM, the New Home Sales report for March from the Census Bureau. The consensus is for an in increase in sales to 455 thousand Seasonally Adjusted Annual Rate (SAAR) in March from 440 thousand in February

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

by Calculated Risk on 4/22/2014 02:40:00 PM

Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in March. Lawler writes: "Note the increase in the foreclosure sales share in Florida."

From CR:   The decline in "distressed" share was one of the positives I mentioned in the previous post.  Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.

Foreclosures are down in most of these areas too, although foreclosures are up in the mid-Atlantic area and Florida (judicial foreclosure) - and a little in Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year).

The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline.  Toledo, Des Moines and Wichita's cash share is up.  The cash share in Florida is still very high.

In general it appears the housing market is slowly moving back to normal.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Mar-14	Mar-13	Mar-14	Mar-13	Mar-14	Mar-13	Mar-14	Mar-13
Las Vegas	12.9%	33.3%	11.7%	11.2%	24.6%	44.5%	43.1%	57.5%
Reno**	14.0%	32.0%	7.0%	9.0%	21.0%	41.0%
Phoenix	5.1%	15.1%	6.9%	11.6%	11.9%	26.8%	33.1%	41.5%
Sacramento	8.2%	27.0%	7.9%	10.5%	16.1%	37.5%	22.5%	36.5%
Minneapolis	4.7%	9.3%	21.9%	28.3%	26.6%	37.6%
Mid-Atlantic	6.4%	11.4%	10.9%	10.7%	17.3%	22.1%	19.9%	20.6%
Orlando	7.9%	21.7%	23.7%	21.4%	31.6%	43.0%	44.6%	55.6%
California *	7.4%	17.0%	7.4%	15.0%	14.8%	32.0%
Bay Area CA*	5.0%	15.0%	4.5%	10.2%	9.5%	25.2%	25.0%	31.0%
So. California*	7.7%	18.7%	6.4%	13.8%	14.1%	32.5%	29.1%	35.1%
Lee County, FL**	4.0%	11.3%	15.5%	11.9%	19.5%	23.2%
Florida SF	6.9%	15.9%	21.6%	16.3%	28.5%	32.3%	45.5%	48.3%
Florida C/TH	4.5%	11.4%	15.9%	14.2%	20.4%	25.6%	70.9%	74.9%
Hampton Roads					24.5%	28.4%
Northeast Florida					39.1%	40.2%
Toledo							40.7%	38.9%
Wichita							32.0%	27.9%
Des Moines							20.8%	19.1%
Tucson							33.5%	35.0%
Omaha							20.3%	22.1%
Pensacola							35.7%	35.9%
Georgia***							33.8%	NA
Pensacola							35.7%	35.9%
Georgia***							33.8%	NA
Houston			6.8%	12.3%
Memphis*			18.5%	26.7%
Springfield IL**			14.0%	26.1%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 4/22/2014 01:35:00 PM

A decline in existing home sales doesn't mean the housing recovery is over.  Far from it!  For existing home sales we need to look at the composition of sales (distressed vs. conventional), and the percent of conventional sales are increasing (even as investor buying has slowed too). That is a positive sign.

For the "housing recovery", we need to look more at housing starts and new home sales (housing starts and new home sales have a larger impact on GDP and employment than existing home sales). Both starts and new home sales are off to a slow start in 2014 compared to 2013, but I expect new home sales and starts to be up solidly year-over-year soon (there was a surge in starts at the beginning of 2013, and the comparisons will be easier going forward).

There are many positives for housing right now: 1) distressed sales are down sharply year-over-year, 2) delinquencies are down sharply, 3) inventory is up (this is a positive right now because there is too little inventory), 4) negative equity has declined significantly.   Overall the housing market is improving. 

Probably the most important number in the NAR existing home sales report is inventory.   This morning the NAR reported that inventory was up 3.1% year-over-year in March.   This is a smaller increase than other sources suggest, and it is important to note that the NAR inventory data is "noisy" (and difficult to forecast based on other data).  A few other points:

• The headline NAR inventory number is NOT seasonally adjusted (and there is a clear seasonal pattern).
• Inventory is still very low, and with the low level of inventory, there is still upward pressure on prices.
• I expect inventory to increase in 2014, and I expect the year-over-year increase to be in the 10% to 15% range by the end of 2014.
• However, if inventory doesn't increase, prices will probably increase a little faster than expected (a key reason to watch inventory right now).

Click on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 5.8% from the bottom. On a seasonally adjusted basis, inventory was up in March compared to February.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were down 7.5% from March 2013, but normal equity sales were probably up from March 2013, and distressed sales down.  The NAR reported that 14% of sales were distressed in March (from a survey that isn't perfect):

Ten percent of March sales were foreclosures, and 4 percent were short sales.

Last year the NAR reported that 21% of sales were distressed sales.

A rough estimate: Sales in March 2013 were reported at 4.96 million SAAR with 21% distressed.  That gives 1.04 million distressed (annual rate), and 3.92 million equity (conventional).  In March 2014, sales were 4.59 million SAAR, with 14% distressed.  That gives 0.64 million distressed, and 3.95 million conventional.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up slightly (even with less investor buying). 

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

Click on graph for larger image.

Sales NSA in March (red column) were above the sales for March 2011, and below sales for 2010, 2012 and 2013. 

Overall this report was as expected (fewer distressed sales pulling down overall sales).

Earlier:
• Existing Home Sales in March: 4.59 million SAAR, Inventory up 3.1% Year-over-year

by Calculated Risk on 4/22/2014 10:00:00 AM

The NAR reports: Existing-Home Sales Remain Soft in March

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 0.2 percent to a seasonally adjusted annual rate of 4.59 million in March from 4.60 million in February, and are 7.5 percent below the 4.96 million-unit pace in March 2013. Last month’s sales volume remained the slowest since July 2012, when it was 4.59 million.

Total housing inventory at the end of March rose 4.7 percent to 1.99 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 5.0 months in February. Unsold inventory is 3.1 percent above a year ago, when there was a 4.7-month supply.

Click on graph for larger image.

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

Sales in March (4.59 million SAAR) were slightly lower than last month, and were 7.5% below the March 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.99 million in March from 1.90 million in February.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third 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 increased 3.1% year-over-year in March compared to March 2013.   This year-over-year increase in inventory suggests inventory bottomed early last year.

Months of supply was at 5.2 months in March.

This was slightly above expectations of sales of 4.56 million.  For existing home sales, the key number is inventory - and the key story is inventory is still low, but up year-over-year.    I'll have more later ...

by Calculated Risk on 4/22/2014 07:01:00 AM

According to Black Knight's First Look report for March, the percent of loans delinquent decreased in March compared to February, and declined by more than 16% year-over-year. This is the lowest level for mortgage delinquencies since October 2007.

Also the percent of loans in the foreclosure process declined further in March and were down 37% over the last year.  Foreclosure inventory was at the lowest level since October 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 5.52% in March from 5.97% in February. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 2.13% in March from 2.22% in February.  

The number of delinquent properties, but not in foreclosure, is down 538,000 properties year-over-year, and the number of properties in the foreclosure process is down 619,000 properties year-over-year.

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

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	March 2014	February 2014	March 2013
Delinquent	5.52%	5.97%	6.59%
In Foreclosure	2.13%	2.22%	3.38%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,571,000	1,749,000	1,842,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,199,000	1,242,000	1,466,000
Number of properties in foreclosure pre-sale inventory:	1,070,000	1,115,000	1,689,000
Total Properties	3,840,000	4,106,000	4,997,000

by Calculated Risk on 4/21/2014 06:59:00 PM

Another builder reports below consensus results, from housing economist Tom Lawler: NVR: Net Orders Off Despite Jump in Community Count; Increased Mortgage Regulations Hit Mortgage Banking Income

NVR, Inc. the nation’s fourth largest home builder with a heavy concentration in the Mid-Atlantic region, reported that net home orders in the quarter ended March 31, 2014 totaled 3,325, down 5.3% from the comparable quarter of 2013. The company’s sales cancellation rate, expressed as a % of gross orders, was 12% last quarter, down from 13% a year ago. The company’s average community count last quarter was 481, up 10.6% from the comparable quarter of 2013. Home settlements totaled 2,211 last quarter, down 2.7% from the comparable quarter of 2013, at an average settlement price of $361,400, up 9.4% from a year ago. The company’s order backlog at the end of March was 6,059, down 2.5% from last March.

NVR’s operating income from its mortgage banking operation plunged by 91% from a year ago last quarter, with the decline attributed to a “more competitive” mortgage lending market, as well as higher G&A expenses “due to increased staffing in response to increased mortgage regulations and expected higher loan volume.”

NVR owned or controlled 65,800 lots at the end of March, up 10.2% from last March.

The company’s overall results last quarter were well below “consensus.”

Tuesday:
• Early, the Black Knight "First Look" at Mortgage performance (delinquencies and foreclosures) in March.

• At 9:00 AM ET, the FHFA House Price Index for February 2013. This was original a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.3% increase.

• At 10:00 AM, the Existing Home Sales for March from the National Association of Realtors (NAR). The consensus is for sales of 4.56 million on seasonally adjusted annual rate (SAAR) basis. Sales in February were at a 4.60 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.64 million SAAR.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for April. The consensus is for a reading of 0, up from -7 in March.

by Calculated Risk on 4/21/2014 04:27:00 PM

Here is another weekly update on housing inventory ...

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for February - March inventory data will be released tomorrow).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  Inventory in 2013 finished up 2.7% YoY.

Inventory in 2014 (Red) is now 6.1% above the same week in 2013.

Inventory is still very low, but this increase in inventory should slow house price increases. 

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).