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Thursday, July 24, 2014

Comments on the New Home Sales report

by Calculated Risk on 7/24/2014 12:31:00 PM

The new home sales report for June - combined with the downward revisions for previous months - was very weak.

The Census Bureau reported that new home sales this year, through June, were 225,000, Not seasonally adjusted (NSA). That is down 4.3% from 235,000 during the first half of 2013 (NSA).

Maybe sales will move sideways for a little longer, but remember early 2013 was a difficult comparison period. Annual sales in 2013 were up 16.3% from 2012, but sales in the first four months of 2013 were up 26% from the same period in 2012!

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate).

The comparisons to last year will be a little easier in Q3, and I still expect to see year-over-year growth later this year.

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to decline or move sideways (distressed sales will slowly decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly 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.

Kansas City Fed: Regional Manufacturing "Activity Edged Higher" in July

by Calculated Risk on 7/24/2014 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Edged Higher

The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity edged higher, and producers’ optimism for future activity increased.

“Factories in our region reported slightly faster growth in July,” said Wilkerson. “In addition, future hiring and capital spending plans were the highest in six months.”

The month-over-month composite index was 9 in July, up from 6 in June but slightly lower than 10 in May. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index climbed from 2 to 11, and the shipments, new orders [to 12], and employment indexes [from 1 to 8] also rose considerably.
emphasis added
The last regional Fed manufacturing survey for July will be released on Monday, July 28th (the Dallas Fed). All of the regional surveys so far have indicated stronger growth in July than in June and - in general - the strongest growth in several years.

New Home Sales decrease to 406,000 Annual Rate in June

by Calculated Risk on 7/24/2014 10:00:00 AM

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 406 thousand.

May sales were revised down from 504 thousand to 442 thousand, and April sales were revised down from 425 thousand to 408 thousand.

Sales of new single-family houses in June 2014 were at a seasonally adjusted annual rate of 406,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.1 percent below the revised May rate of 442,000 and is 11.5 percent below the June 2013 estimate of 459,000.
New Home SalesClick on graph for larger image.

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

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

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply increased in June to 5.8 months from 5.2 months in May.

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 June was 197,000. This represents a supply of 5.8 months at the current sales rate."
New Home Sales, InventoryOn 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.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In June 2014 (red column), 38 thousand new homes were sold (NSA). Last year 43 thousand homes were also sold in June. The high for June was 115 thousand in 2005, and the low for June was 28 thousand in 2010 and 2011.

This was well below expectations of 475,000 sales in June, and sales were down 11.5% year-over-year.

I'll have more later today . 

Weekly Initial Unemployment Claims decrease to 284,000, 4-Week Average Lowest since May 2007

by Calculated Risk on 7/24/2014 08:30:00 AM

The DOL reports:

In the week ending July 19, the advance figure for seasonally adjusted initial claims was 284,000, a decrease of 19,000 from the previous week's revised level. This is the lowest level for initial claims since February 18, 2006 when they were 283,000. The previous week's level was revised up by 1,000 from 302,000 to 303,000. The 4-week moving average was 302,000, a decrease of 7,250 from the previous week's revised average. This is the lowest level for this average since May 19, 2007 when it was 302,000. The previous week's average was revised up by 250 from 309,000 to 309,250.

There were no special factors impacting this week's initial claims.
The previous week was revised up to 303,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 302,000.

This was lower than the consensus forecast of 310,000.  The 4-week average is now at normal levels for an expansion.

Wednesday, July 23, 2014

Thursday: New Home Sales, Unemployment Claims and More

by Calculated Risk on 7/23/2014 08:16:00 PM

The scams never end, and this one was really disgusting (ripping off people in financial trouble) ... from the LA Times: Authorities crack down on mortgage-relief scams nationwide

Federal and state officials filed lawsuits accusing dozens of companies of ripping off struggling homeowners by falsely promising help in avoiding foreclosures or lowering mortgage payments while collecting millions of dollars in illegal upfront fees.
...
The Consumer Financial Protection Bureau said three suits it filed against eight companies and their owners involved scams that cost homeowners more than $25 million in illegal upfront fees for services such as renegotiating mortgages or preventing foreclosures.
Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 310 thousand from 302 thousand.

• At 10:00 AM, New Home Sales for June from the Census Bureau. The consensus is for a decrease in sales to 475 thousand Seasonally Adjusted Annual Rate (SAAR) in June from 504 thousand in May.

• At 11:00 AM, the Kansas City Fed manufacturing survey for July.

• During the day, the NMHC Quarterly Survey of Apartment Conditions.

Inflation: Another "False Alarm"?

by Calculated Risk on 7/23/2014 06:00:00 PM

From Gavyn Davies at the Financial Times: Another false alarm on US inflation?

There have been a few false alarms about a possible upsurge in inflation in the US in the past few years, even as core inflation on most measures has remained extremely subdued. ... Another such scare has been brewing recently.
...
It now seems probable that part of the recent jump in core inflation was just a random fluctuation in the data. ... But the main reason for the lack of concern is that wage pressures in the economy have remained stable, on virtually all the relevant measures. ... there has been yet another false alarm on US inflation.
From Ron Insana at CNBC: Inflation is about to fall—and fall hard
I will make a bet with this country's leading inflationistas, who continue to warn that inflation is about to surge, that they are dead wrong. ...

Agricultural commodity prices, excluding meats, have crashed. Corn, wheat and soybean prices have plummeted on expectations of bumper crops around the world — particularly in the United States. ...
...
Likewise, despite geopolitical hot spots around the world, energy prices have also dropped from recent highs. While oil remains stubbornly above $100 a barrel, both at home and abroad. Were it not for recent events in Ukraine and the Middle East, oil prices may have continued their recent dip below that century mark. ...

With respect to raging wage inflation, that argument is also a non-starter. Wages are rising at a 2 percent to 2.5 percent annual rate, hardly the stuff of wage-price spirals....

For years, and on all counts, inflation hawks have been, let's say, premature in calling for a rapid acceleration in inflation.
My view is inflation is not a concern this year.

Housing Inventory: NAR and Housing Tracker

by Calculated Risk on 7/23/2014 01:41:00 PM

I've been using weekly inventory numbers from Housing Tracker ("DeptofNumbers") to track changes in listed inventory and it might be useful to compared the Housing Tracker numbers to the Realtor (NAR) numbers for inventory.

According to Housing Tracker for (54 metro areas), inventory is up 15.0% compared to the same week last year.

However the NAR reported yesterday that inventory in June was only up 6.5% year-over-year.  Some of the difference could be because of coverage (Housing Tracker is only for the largest 54 metro areas), and some of the difference could be because of timing and methodology.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

This graph shows the NAR estimate of existing home inventory through June (left axis) and the HousingTracker data for the 54 metro areas through July.

In general - over time - Housing Tracker and the NAR reports of inventory move together.

Both reports suggest inventory is increasing, and that overall inventory is still fairly low.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker.net YoY Home Inventory This year-over-year increase in inventory is a significant story.  This increase should slow house price increases (maybe even lead to price declines in some areas).

Note: I use the NAR data as the "standard", but I think the Housing Tracker data is useful (since it is reported weekly without a significant lag).  My guess is the NAR will continue to report increases in inventory, and that inventory will be up 10% to 15% year-over-year at the end of 2014 based on the NAR report (maybe even more).

AIA: Architecture Billings Index increased in June

by Calculated Risk on 7/23/2014 10:35:00 AM

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

From AIA: Momentum Increasing for Architecture Billings Index

The Architecture Billings Index (ABI) is signaling improving conditions for the overall design and construction industry. 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 June ABI score was 53.5, up from a mark of 52.6 in May. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 66.4, up noticeably from the reading of 63.2 the previous month and its highest level in a calendar year.

The AIA has added a new indicator measuring the trends in new design contracts at architecture firms that can provide a strong signal of the direction of future architecture billings. The score for design contracts in June was 55.7 – the highest mark since that indicator starting being measured in October 2010.

The recent surge in both design contracts and general inquiries for new projects by prospective clients is indicative of a sustainable strengthening across the construction marketplace,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “With the first positive reading since last summer in billings at institutional firms, it appears that design activity for all major segments of the building industry is growing. The challenge now for architecture firms seems to be finding the right balance for staffing needs to meet increasing demand.”

• Regional averages: Midwest (56.3), South (53.9), Northeast 51.1) , West (48.7) [three month average]
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.5 in June, up from 52.6 in May. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion during 18 of the last 23 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.  So the readings over the last year suggest some increase in CRE investment this year and in 2015.

Black Knight: Mortgage Loans in Foreclosure Process Lowest since May 2008

by Calculated Risk on 7/23/2014 09:16:00 AM

According to Black Knight's First Look report for June, the percent of loans delinquent increased slightly in June compared to May, and declined by 15.0% year-over-year.

Also the percent of loans in the foreclosure process declined further in June and were down 36% over the last year.  Foreclosure inventory was at the lowest level since May 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.70% in June, up seasonally from 5.62% in May. The normal rate for delinquencies is around 4.5% to 5%. The increase in delinquencies was in the 'less than 90 days' bucket.

The percent of loans in the foreclosure process declined to 1.88% in June from 1.91% in May.  

The number of delinquent properties, but not in foreclosure, is down 445,000 properties year-over-year, and the number of properties in the foreclosure process is down 507,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for June in early August.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  June 2014May
2014
June 2013
Delinquent5.70%5.62%6.68%
In Foreclosure1.88%1.91%2.93%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:1,728,0001,670,0001,983,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:1,155,0001,169,0001,345,000
Number of properties in foreclosure pre-sale inventory:951,000966,0001,458,000
Total Properties3,834,0003,805,0004,785,000

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

by Calculated Risk on 7/23/2014 07:01:00 AM

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

Mortgage applications increased 2.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 18, 2014. ...

The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 0.3 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.33 percent, with points increasing to 0.23 from 0.20 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index 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.

As expected, refinance activity is very low this year.


Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 15% from a year ago.