by Calculated Risk on 9/25/2014 02:29:00 PM

The automakers will report September vehicle sales on Wednesday, Oct 1st. Sales in August were at 17.45 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in September will be solidly above 16 million SAAR again.

Note:  There were 24 selling days in September this year compared to 23 last year.

Here are a few forecasts:

From J.D. Power: Summer Sizzle Continues as New-Vehicle Sales in August Forecast to Hit Highest Levels of the Year

New-vehicle retail sales in September 2014 are projected to come in at 1.0 million units, a 94,000-unit increase from September 2013 and 6 percent growth on a selling-day adjusted basis (September 2014 has 24 selling days, compared with 23 in September 2013). The retail seasonally adjusted annualized rate (SAAR) in September is expected to be 13.5 million units—which is 1.2 million units more than in September 2013—marking the seventh consecutive month in which the SAAR has exceeded 13 million units. Retail transactions are the most accurate measure of true underlying consumer demand for new vehicles.

The strong sales pace in September is noteworthy as it follows an exceptionally strong August when retail sales reached 1,378,588.

“Vehicle sales typically fall sharply immediately following the Labor Day holiday before recovering later in the month, but the decline this September has been smaller than in prior years,” said John Humphrey, senior vice president of the global automotive practice at J.D. Power. “While the strong sales pace is an indicator of the health of the industry, it is being complemented by record transaction prices for the month of September.” [Total forecast 16.5 million SAAR]

From Kelley Blue Book: New-Vehicle Sales To Climb 9 Percent In September; Kelley Blue Book Adjusts 2014 Forecast To 16.4 Million

New-vehicle sales are expected to increase 9.1 percent year-over-year to a total of 1.24 million units, resulting in an estimated 16.4 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ... "Following an extraordinarily strong month of sales in August, with the industry above 17 million SAAR for the first time in eight years, Kelley Blue Book expects sales to level out in September," said Alec Gutierrez, senior analyst for Kelley Blue Book. "Sales will remain strong and show healthy year-over-year improvement. Rising incentive spend in recent months has been more than offset by increasing retail transaction prices, signaling continued consumer demand."

From TrueCar: TrueCar Forecasts Continued Strong New Vehicle Sales Growth in September; Up 9.7% Compared to Last Year

Seasonally Adjusted Annualized Rate ("SAAR") of 16.4 million new vehicle sales.

TrueCar's 2014 Annual Sales Forecast remains at 16.4 million vehicles as well.

Another solid month for auto sales, and this should be the best year since 2006.

by Calculated Risk on 9/25/2014 11:10:00 AM

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

The Federal Reserve Bank of Kansas City released the September 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’ expectations for future activity maintained their recent solid levels.

“We saw slightly faster growth this month after a sizable easing in August,” Wilkerson said. “This is despite continued sluggish activity in our important food processing segment, driven in part by higher beef costs this year.”

The month-over-month composite index was 6 in September, slightly higher than 3 in August but lower than 9 in July. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index increased from 4 to 12, and the shipment index also grew from a reading of 2 in August to 14. The employment index increased significantly from -4 in the last survey period to 7 in September.
emphasis added

The last regional Fed manufacturing survey for September will be released on Monday, Sept 29th (the Dallas Fed). All of the regional surveys so far have indicated solid growth in September (three out of four higher than in August), and this suggests another strong reading for the ISM manufacturing survey.

by Calculated Risk on 9/25/2014 09:30:00 AM

From CoreLogic: CoreLogic Reports 946,000 Residential Properties Regained $1 Trillion in Total Equity in Q2 2014

CoreLogic ... today released new analysis showing nearly 950,000 homes returned to positive equity in the second quarter of 2014, bringing the total number of mortgaged residential properties with equity in the U.S. to more than 44 million. Nationwide, borrower equity increased year over year by approximately $1 trillion in Q2 2014. The CoreLogic analysis indicates that approximately 5.3 million homes, or 10.7 percent of all residential properties with a mortgage, were still in negative equity as of Q2 2014 compared to 6.3 million homes, or 12.7 percent, for Q1 2014. This compares to a negative equity share of 14.9 percent, or 7.2 million homes, in Q2 2013, representing a year-over-year decrease in the number of homes underwater by almost 2 million (1,962,435), or 4.2 percent.

... Of the 44 million residential properties with positive equity, approximately 9 million, or 19 percent, have less than 20-percent equity (referred to as “under-equitied”) and 1.3 million of those have less than 5 percent (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5 percent, an additional 1 million homeowners now in negative equity would regain equity. ...

"The increase in borrower equity of $1 trillion from a year earlier is evidence that things are moving solidly in the right direction,” said Sam Khater, deputy chief economist for CoreLogic. “Borrower equity is important because home equity constitutes borrowers’ largest investment segment and, as a result, is driving forward the rise in wealth for the typical homeowner.”
emphasis added

Click on graph for larger image.

This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic:

"Nevada had the highest percentage of mortgaged properties in negative equity at 26.3 percent, followed by Florida (24.3 percent), Arizona (19.0 percent), Illinois (15.4 percent) and Rhode Island (14.8). These top five states combined account for 32.8 percent of negative equity in the United States."

Note: The share of negative equity is still very high in Nevada and Florida, but down significantly from a year ago (Q2 2013) when the negative equity share in Nevada was at 36.4 percent, and at 31.5 percent in Florida.

The second graph shows the distribution of home equity in Q2 compared to Q1 2014. Close to 4% of residential properties have 25% or more negative equity, down from Q1.

In Q2 2013, there were 7.2 million properties with negative equity - now there are 5.3 million.  A significant change.

by Calculated Risk on 9/25/2014 08:34:00 AM

The DOL reports:

In the week ending September 20, the advance figure for seasonally adjusted initial claims was 293,000, an increase of 12,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 280,000 to 281,000. The 4-week moving average was 298,500, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 299,500 to 299,750.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 281,000.

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 298,500.

This was below the consensus forecast of 300,000 and in the normal range for an economic expansion.

by Calculated Risk on 9/25/2014 07:01:00 AM

According to Black Knight's First Look report for August, the percent of loans delinquent increased in August compared to July - mostly due to an increase in short term delinquencies - and declined by 5% year-over-year.

Note: Usually delinquencies increase seasonally in September, but this might have moved to August this year. The increase was mostly in the 30 day bucket.

Also the percent of loans in the foreclosure process declined further in August and were down 32% over the last year.  Foreclosure inventory was at the lowest level since March 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.90% in August, up from 5.64% in July. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.80% in August from 1.85% in July.  

The number of delinquent properties, but not in foreclosure, is down 129,000 properties year-over-year, and the number of properties in the foreclosure process is down 428,000 properties year-over-year.

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

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Aug 2014	July 2014	Aug 2013	Aug 2012
Delinquent	5.90%	5.64%	6.20%	6.87%
In Foreclosure	1.80%	1.85%	2.66%	4.12%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,852,000	1,713,000	1,836,000	1,910,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,143,000	1,136,000	1,288,000	1,520,000
Number of properties in foreclosure pre-sale inventory:	913,000	935,000	1,341,000	2,020,000
Total Properties	3,908,000	3,786,000	4,465,000	5,450,000

by Calculated Risk on 9/24/2014 08:15:00 PM

On August Durable Goods from MarketWatch: What goes up must come down: Durable-goods orders set to sink

After flying high in July, orders for U.S. durable goods are likely to take a big dive in August.

But don’t pay any heed. The record 22.6% surge in orders in July was propelled mainly by a pile of new contracts for Boeing jets. Those orders tumbled in August and will drag orders into deep negative territory. Economists polled by MarketWatch forecast a 17.3% in new orders.

Strip out airplanes and autos, however, and Wall Street expects orders for durable goods to rise by 1% or more in August.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 300 thousand from 280 thousand.

• Also at 8:30 AM, Durable Goods Orders for August from the Census Bureau. The consensus is for a 17.1% decrease in durable goods orders (last month durable goods orders were up 22.6% due to aircraft orders).

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

by Calculated Risk on 9/24/2014 04:35:00 PM

From housing economist Tom Lawler: KB Home: Net Orders Up 5% YOY, Orders/Community Flat; Deliveries Down on Delays in Construction Schedules and Customer Mortgage Loan Closings

KB Home reported that net home orders in the quarter ended August 31, 2014 totaled 1,827, up 5.2% from the comparable quarter of 2013. Net orders per community were virtually unchanged from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 31% last quarter, down from 33% in the comparable quarter of 2013. Home deliveries last quarter totaled 1,793, down 1.8% from the comparable quarter of 2013, at an average sales price of $327,000, up 9.3% from a year ago. The company’s order backlog at the end of August was 3,432, up 12.9% from last August.

In its press release the company said that “(d)eliveries in the quarter were tempered by delays in construction schedules and customer mortgage loan closings that resulted in some deliveries being deferred to the fourth quarter.” Delays in customer mortgage loans closings were mainly related to a poorly-executed transition to Home Community Mortgage, LLC, the company’s new mortgage banking joint venture (with Nationstar).

The press release also included commentary on the average selling price.

“The overall average selling price rose 9% to $327,000, up from $299,100 for the same period of 2013. The Company's average selling price has now increased on a year-over-year basis for the last 17 quarters.

“The average selling price increased primarily due to the Company's continued positioning of its new home communities in land-constrained submarkets that typically feature higher household incomes, higher median home sales prices and stronger demand for larger home sizes, as well as generally favorable market conditions.

“Average selling prices were higher in all of the Company's homebuilding regions compared to the same quarter of 2013, with increases ranging from 9% in the Central and Southeast regions to 21% in the West Coast region.”

The company’s CEO said that it had seen “(d)uring the third quarter there was an appreciable uptick in our traffic levels,” and in the conference call officials said that traffic last quarter was up 24% from a year ago.

In the previous quarter’s earnings conference call on June 27, KB Home’s CEO raised some eyebrows by saying that the company had seen some “re-emergence” of first-time home buyers, though in response to questions he noted that observed increases in first-time home buyers were in a limited number of areas with strong job growth. He did not talk about re-emerging first-time home buyer demand today.

He did, however, mention that household formations have been increasing, which suggests that his staff either hadn’t looked at or didn’t want to show him the latest CPS and ACS data on households.

And from Tom Lawler on the New Home sales report: Census Estimates that New SF Home Sales Jumped in August; Sales Estimate for the West Surged to Fastest Pace in Almost Seven Years, But Will Probably Be Revised Downward

Census estimated that new SF home sales ran at a seasonally adjusted annual rate of 504,000 in August, up 18.0% from July’s upwardly-revised (to 427,000 from 412,000) pace. (Revisions to May and June sales were de minimis). According to Census estimates, new SF home sales in the West ran at a seasonally adjusted annual rate of 153,000, up 50.0% from July’s pace and up 84.3% from last August’s pace, and the highest seasonally-adjusted sales pace since January 2008. Census’ unadjusted estimate for new SF home sales in the West last month was the highest for an August since 2007.

Based on limited anecdotal and builder reports, the Census estimate for new home sales in the West seem way to high, and a significant downward revision next month would not be surprising.

New Single-Family Home Sales, Census Estimates
	Total	Northeast	Midwest	South	West
2012 (Full Year)	368	29	47	195	97
2013 (Full Year)	429	31	61	233	105
July 2014 (SAAR)	427	24	58	243	102
August 2014 (SAAR)	504	31	58	262	153

by Calculated Risk on 9/24/2014 01:59:00 PM

The new home sales report for August was above expectations at 504 thousand on a seasonally adjusted annual rate basis (SAAR).  This was the highest sales rate since May 2008.  However, we need to remember this was just one month of data.

Also sales for the previous three months were revised up a combined 16,000 sales SAAR.

The Census Bureau reported that new home sales this year, through August, were 307,000, Not seasonally adjusted (NSA). That is up 2.7% from 299,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year (maybe 3% or so for the year).

Sales were up 33.0% year-over-year in August - however sales declined sharply in Q3 2013 as mortgage rates increased - so this was an easy comparison.  The comparison for September will be pretty easy too.

Click 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 are easy right now, and I expect to see year-over-year growth for the 2nd half of 2014.

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.

The "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 continue to 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.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down, and this ratio will probably continue to trend down over the next several years.

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.

by Calculated Risk on 9/24/2014 11:25:00 AM

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

From AIA: Architecture Billings Index Exhibits Continued Strength

On the heels of recording its strongest pace of growth since 2007, there continues to be an increasing level of demand for design services signaled in the latest Architecture Billings Index (ABI). 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 August ABI score was 53.0, down from a mark of 55.8 in July. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.6, following a very strong mark of 66.0 the previous month.

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 August was 56.9.

“One of the key triggers for accelerating growth at architecture firms is that long-stalled construction projects are starting to come back to life in many areas across the country,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Long awaited access to credit from lending institutions and an increasing comfort level in the overall economy has helped revitalize the commercial real estate sector in recent months. Additionally, though, a crucial component to a broader industry-wide recovery is the emerging demand for new projects such as education facilities, government buildings and, in some cases, hospitals.”

• Regional averages: Northeast (58.1) , South (55.1), West (52.5), Midwest (51.0) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.0 in August, down from 55.8 in July. Anything above 50 indicates expansion in demand for architects' services.

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 an increase in CRE investment this year and in 2015.

by Calculated Risk on 9/24/2014 10:00:00 AM

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 504 thousand.

July sales were revised up from 412 thousand to 427 thousand, and June sales were revised down from 422 thousand to 419 thousand.

"Sales of new single-family houses in August 2014 were at a seasonally adjusted annual rate of 504,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.0 percent above the revised July rate of 427,000 and is 33.0 percent above the August 2013 estimate of 379,000."

Click 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.

The months of supply decreased in August to 4.8 months from 5.6 months in July.

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 August was 203,000. This represents a supply of 4.8 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.

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.

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

In August 2014 (red column), 41 thousand new homes were sold (NSA). Last year 31 thousand homes were also sold in August.  This was the best August since 2007.

The high for August was 110 thousand in 2005, and the low for August was 23 thousand in 2010.

This was well above expectations of 430,000 sales in August, and sales were up 33.0% year-over-year.

I'll have more later today.