by Calculated Risk on 12/03/2014 07:00:00 AM

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

Mortgage applications decreased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 28, 2014. This week’s results included an adjustment for the Thanksgiving holiday. ...

The Refinance Index decreased 13 percent from the previous week. The seasonally adjusted Purchase Index increased 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) decreased to 4.08 percent, the lowest level since May 2013, from 4.15 percent, with points increasing to 0.28 from 0.25 (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 75% from the levels in May 2013.

Even with a decline in mortgage rates, refinance activity is very low this year and 2014 will be the lowest since year 2000.  As I've noted before - rates would have to decline significantly for there to be a large refinance boom.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 4% from a year ago.

by Calculated Risk on 12/02/2014 07:09:00 PM

Looking ahead to Friday, if net non-farm job growth (November plus revisions) is 222 thousand or more, than 2014 will be the best year for employment since the '90s.

For the private sector, the magic number is 176 thousand to pass 2011 and be the best year since the '90s (seems very likely).

Right now the consensus is for 235 thousand non-farm payroll jobs according to MarketWatch.

Get ready to party like it's 1999!

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

• At 8:15 AM, the ADP Employment Report for November. This report is for private payrolls only (no government). The consensus is for 226,000 payroll jobs added in November, down from 230,000 in October.

• At 10:00 AM, the ISM non-Manufacturing Index for November. The consensus is for a reading of 57.7, up from 57.1 in October. Note: Above 50 indicates expansion.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 12/02/2014 02:44:00 PM

Based on a WardsAuto estimate, light vehicle sales were at a 17.08 million SAAR in November. That is up 5.5% from November 2013, and up 4.5% from the 16.35 million annual sales rate last month.

Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for November (red, light vehicle sales of 17.08 million SAAR from WardsAuto).

This was above the consensus forecast of 16.5 million SAAR (seasonally adjusted annual rate).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was another strong month for vehicle sales - the second month with 17 million SAAR this year - and the seventh consecutive month with a sales rate over 16 million.

by Calculated Risk on 12/02/2014 12:39:00 PM

A few more updates ...

Update 12/5/2014 more from Zillow: 2015: A Big Year for Buyers

Update 12/2/2014 added CoreLogic.

Update 11/26/2014 for Merrill Lynch  (minor downward revisions) and Fannie Mae (Noveber update, no changes)

Update 11/24/2014: I've added Metrostudy's forecast.

Update: I've added the MBA and Goldman Sachs forecasts.  Also Wells Fargo updated their forecast (slight changes).

Towards the end of each year I collect some housing forecasts for the following year, and it looks like most analysts are optimistic for 2015.

Here is a summary of forecasts for 2014. In 2014, new home sales will be around 440 thousand, and total housing starts will be close to 1 million.  No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high).

In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.

Note: Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays were the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.

The table below shows several forecasts for 2015.

From Fannie Mae: Housing Forecast: November 2014

From NAHB: Single-Family Production Poised to Take Off in 2015

I don't have Moody's Analytics' forecast, but Mark Zandi, chief economist at Moody's Analytics said today "that single-family starts could be closing in on 1 million units by the end of 2015 and multifamily production could go as high as 500,000 units."  That seems too high.

I haven't worked up a forecast yet for 2015.

Housing Forecasts for 2015
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
Chapman U			1,056	2.4%
CoreLogic	498	743	1,124	5.2%5
Fannie Mae	523	783	1,170	4.9%2
Goldman Sachs	521		1,166	3.1%
Merrill Lynch	530		1,175	3.7%
Metrostudy	515	730	1,100	3.9%4
MBA	503	728	1,108	3.0%2
NAHB	547	802	1,158
NAR	620		1,300	4%3
Wells Fargo	530	770	1,160	3.3%
Zillow	501		1,113	2.5%4
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index 3NAR Median Home price 4Zillow Home Value Index, Oct 2014 to Oct 2015 5CoreLogic HPI

by Calculated Risk on 12/02/2014 10:03:00 AM

The Census Bureau reported that overall construction spending increased in October:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2014 was estimated at a seasonally adjusted annual rate of $971.0 billion, 1.1 percent above the revised September estimate of $960.3 billion.

Both private and public spending increased in October:

Spending on private construction was at a seasonally adjusted annual rate of $692.4 billion, 0.6 percent above the revised September estimate of $688.0 billion. Residential construction was at a seasonally adjusted annual rate of $353.8 billion in October, 1.3 percent above the revised September estimate of $349.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $338.6 billion in October, 0.1 percent below the revised September estimate of $338.9 billion. ...

In October, the estimated seasonally adjusted annual rate of public construction spending was $278.6 billion, 2.3 percent above the revised September estimate of $272.3 billion.
emphasis added

Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for lodging is up 16% year-over-year, whereas spending for power (includes oil and gas) construction is declining since peaking in May.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 48% below the peak in early 2006 - but up 55% from the post-bubble low.

Non-residential spending is 18% below the peak in January 2008, and up about 50% from the recent low.

Public construction spending is now 14% below the peak in March 2009 and about 7% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 2%. Non-residential spending is up 6% year-over-year. Public spending is up 2% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was a strong report - well above the consensus forecast of a 0.5% increase - and there were also upward revisions to spending in August and September.

by Calculated Risk on 12/02/2014 09:00:00 AM

Notes: This CoreLogic House Price Index report is for October. The recent Case-Shiller index release was for September. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports More Than Half of States At or Within 10 Percent of Pre-Crisis Home Price Peak

Home prices nationwide, including distressed sales, increased 6.1 percent in October 2014 compared to October 2013. This change represents 32 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, rose by 0.5 percent in October 2014 compared to September 2014.
...
Excluding distressed sales, home prices nationally increased 5.6 percent in October 2014 compared to October 2013 and 0.6 percent month over month compared to September 2014. Also excluding distressed sales, 49 states and the District of Columbia showed year-over-year home price appreciation in October, with Mississippi being the only state to experience a year-over-year decline (-1.2 percent). Distressed sales include short sales and real estate owned (REO) transactions. ...

“Home price growth is moderating as we head into the late fall and is currently running at half the pace it was in the spring of 2014,” said Sam Khater, deputy chief economist at CoreLogic. “However, there are still pockets of strength, especially in several Texas markets, as well as Seattle, Denver and other markets with strong economic fundamentals.”
emphasis added

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.5% in October, and is up 6.1% over the last year.

This index is not seasonally adjusted, and this month-to-month increase was fairly strong during the seasonally weak period.


The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty two consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

The YoY increases had been slowing, but picked up a little in October.

by Calculated Risk on 12/01/2014 09:09:00 PM

Oh no! From the WSJ: Dodgy Home Appraisals Are Making a Comeback

An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files.

The firm reviewed more than 200,000 mortgages, parsing the homes’ appraised values and other information, including the properties’ sizes and similar homes sold in the areas at the times. The review was conducted using the firm’s software and staff appraisers.

Bankers, appraisers and federal officials in interviews said inflated appraisals are becoming more widespread as the recovery in the housing market cools.

During the bubble, the appraiser always seemed to "hit the number" - no matter how crazy.  I haven't seen anything like that in my area.

Tuesday:
• All day, Light vehicle sales for November. The consensus is for light vehicle sales to increase to 16.5 million SAAR in November from 16.3 million in October (Seasonally Adjusted Annual Rate).

• At 10:00 AM ET, Construction Spending for October. The consensus is for a 0.5% increase in construction spending.

by Calculated Risk on 12/01/2014 04:57:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Registered Gain in October

Driven by stronger sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in October. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.8 in October, up 1.8 percent from its September level. In addition, the RPI stood above 100 for the 20th consecutive month, which signifies expansion in the index of key industry indicators.

“The positive same-store sales and customer traffic results suggest that restaurants are the beneficiaries of falling gas prices, which were down $0.88 since the end of June,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Elevated food costs continue to top the list of challenges reported by restaurant operators, but overall they remain generally optimistic that business conditions will improve in the months ahead.”
emphasis added

Click on graph for larger image.

The index increased to 102.8 in October, up from 101.0 in September. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is a strong reading - and as Riehle noted - it appears restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 12/01/2014 01:36:00 PM

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. (note: the beginning of this post is from an earlier post on apartment supply and demand).

The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).

The demographics are still favorable for apartments, since  a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.

Click on graph for larger image.

This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.

The circled area shows the recent and projected increase for this group.

From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.

This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

The second graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.

by Calculated Risk on 12/01/2014 10:00:00 AM

The ISM manufacturing index suggests slightly slower expansion in November than in October. The PMI was at 58.7% in November, down from 59.0% in October. The employment index was at 54.9%, down from 55.5% in October, and the new orders index was at 66.0%, up from 65.8%.

From the Institute for Supply Management: November 2014 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in November for the 18th consecutive month, and the overall economy grew for the 66th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The November PMI® registered 58.7 percent, a decrease of 0.3 percentage point from October’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 66 percent, an increase of 0.2 percentage point from the reading of 65.8 percent in October. The Production Index registered 64.4 percent, 0.4 percentage point below the October reading of 64.8 percent. The Employment Index grew for the 17th consecutive month, registering 54.9 percent, a decrease of 0.6 percentage point below the October reading of 55.5 percent. Inventories of raw materials registered 51.5 percent, a decrease of 1 percentage point from the October reading of 52.5 percent. The Prices Index registered 44.5 percent, down 9 percentage points from the October reading of 53.5 percent, indicating lower raw materials prices in November relative to October. Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 58.2%, and indicates solid expansion in November.