by Calculated Risk on 5/19/2015 08:43:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,135,000. This is 20.2 percent above the revised March estimate of 944,000 and is 9.2 percent above the April 2014 rate of 1,039,000.

Single-family housing starts in April were at a rate of 733,000; this is 16.7 percent above the revised March figure of 628,000. The April rate for units in buildings with five units or more was 389,000.
emphasis added

Building Permits:
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,143,000. This is 10.1 percent above the revised March rate of 1,038,000 and is 6.4 percent above the April 2014 estimate ...

Single-family authorizations in April were at a rate of 666,000; this is 3.7 percent above the revised March figure of 642,000. Authorizations of units in buildings with five units or more were at a rate of 444,000 in April.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased in April.  Multi-family starts are up 9.2% year-over-year.

Single-family starts (blue) increased in April and are up about 14.7% year-over-year.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

This was well above expectations of 1.029 million starts in April.  Overall this was a solid report with upward revisions to prior months. I'll have more later ...

by Calculated Risk on 5/18/2015 07:06:00 PM

From the SF Fed: The Puzzle of Weak First-Quarter GDP Growth

In late April, the Bureau of Economic Analysis (BEA) released its initial estimate of U.S. economic growth for the first three months of 2015. The report was very disappointing, as inflation-adjusted, or real, gross domestic product (GDP) edged up a mere 0.2% at an annual rate in the first quarter. This estimate was far weaker than many economists had forecast, and it raised concerns that the underlying economic recovery may have stalled. Such anemic growth is of particular concern to Federal Reserve policymakers considering when to begin normalizing monetary policy.

However, a number of analysts have suggested that the reported weakness in first-quarter growth may have been exaggerated by a statistical anomaly (see, for example, Liesman 2015 and Wolfers 2015). Indeed, an unusual pattern has prevailed for some time in which first-quarter real GDP growth is generally lower than growth later in the year. This regular, calendar-based statistical pattern is a puzzle because the BEA seasonally adjusts the GDP data to remove such fluctuations. First-quarter seasonally adjusted real GDP growth should not be consistently higher or lower than growth in any other quarter. Accordingly, the anomalous pattern of generally weak first-quarter growth suggests that the BEA’s estimate of GDP growth for the first three months of 2015 may understate the true strength of the economy.
...
The application of second-round seasonal adjustment increases real GDP growth in the first quarter of 2015 from its initial published value of 0.2% to 1.8%. Taking this correction at face value, real GDP growth in the first quarter was stronger and much closer to the economy’s sustainable rate of trend growth.
...
The very weak initial estimate of first-quarter real GDP growth this year surprised many forecasters, in part because it was at odds with other fairly positive data, including solid employment gains over the past six months. We show that, although the BEA adjusts for seasonal movements at a disaggregated level, the published real GDP data still exhibit calendar-based fluctuations—that is, residual seasonality. After we apply a second round of seasonal adjustment directly to the published aggregate data, we estimate much faster real GDP growth in the first quarter of this year. We conclude that there is a good chance that underlying economic growth so far this year was substantially stronger than reported.

Q1 will probably be revised down to a negative reading, but ... no worries!

Tuesday:
• At 8:30 AM ET, Housing Starts for April. Total housing starts increased to 926 thousand (SAAR) in March. Single family starts increased to 618 thousand SAAR in March. The consensus is for total housing starts to increase to 1.029 million (SAAR) in April.

by Calculated Risk on 5/18/2015 02:42:00 PM

Note: LA area ports were impacted by labor negotiations that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in March.   Outbound traffic was down 1.1% compared to 12 months ending in March.

Inbound traffic had been increasing, and outbound traffic had been moving down recently.  The recent downturn in exports might be due to the strong dollar and weakness in China.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 2% year-over-year in April; exports were down 11% year-over-year.

The labor issues are now resolved - the ships have disappeared from the outer harbor - and the distortions from the labor issues are behind us.  This data suggests a smaller trade deficit in April.

by Calculated Risk on 5/18/2015 12:50:00 PM

Time flies! It was five 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: This is an update to a post I wrote a year ago).

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

Demographics are still favorable, but my sense is the move "from owning to renting" has slowed. And more supply has been coming online.

On demographics, a large cohort has been 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 are 20 to 24 years old, and 25 to 29 years old (the largest cohorts are 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 five years - and I expect new apartment construction to stay strong for a few more years.

And on supply, the table below shows the number of 5+ units started and completed per year since 1990 (Completions matter for supply).  New supply will probably increase by 250,000 to 260,000 units this year - and increase further in 2015 since it can take over a year from start to completion for large complexes.  Note: This doesn't include houses converted to rentals - and that is a substantial number in recent years.

This suggests new supply will probably balance demand soon, and that means vacancy rates have likely bottomed.

5+ Units, Starts and Completions (000s)1
Year	Completions	Starts
1990	297.3	260.4
1991	216.6	137.9
1992	158.0	139.0
1993	127.1	132.6
1994	154.9	223.5
1995	212.4	244.1
1996	251.3	270.8
1997	247.1	295.8
1998	273.9	302.9
1999	299.3	306.6
2000	304.7	299.1
2001	281.0	292.8
2002	288.2	307.9
2003	260.8	315.2
2004	286.9	303.0
2005	258.0	311.4
2006	284.2	292.8
2007	253.0	277.3
2008	277.2	266.0
2009	259.8	97.3
2010	146.5	104.3
2011	129.9	167.3
2012	157.6	233.9
2013	186.2	293.7
2014	255.6	341.7
20152	265.0	350.0
1 5+ units is close to the number of units built for rent each year.
2 Pace through March 2015, completions will probably be above 270,000 for 2015

by Calculated Risk on 5/18/2015 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 54 in May, down from 56 in April. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Falls Two Points in May

Builder confidence in the market for newly built, single-family homes in May dropped two points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. It is a nine-point increase from the May 2014 reading of 45.
...
“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said NAHB Chief Economist David Crowe. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”
...
The index’s components were mixed in May. The component charting sales expectations in the next six months rose one point to 64, the index measuring buyer traffic dropped a single point to 39, and the component gauging current sales conditions decreased two points to 59.

Looking at the three-month moving averages for regional HMI scores, the South and Midwest each rose one point to 57 and 55, respectively. The Northeast fell by one point to 41 and the West dropped three points to 55.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 57.