by Calculated Risk on 12/18/2018 05:01:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was up 2.8% year-over-year (YoY) in October, this was the third consecutive YoY increase, following over three years of YoY declines.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, and  Sacramento (through November), and Phoenix (through October) and total existing home inventory as reported by the NAR (through October, November will be released tomorrow).  (I'll be adding more areas).

Click on graph for larger image.

The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory was up 63% YoY in Las Vegas in November (red), the fifth consecutive month with a YoY increase.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.  Inventory was up 9% year-over-year in Houston in November.   With falling oil prices - along with higher mortgage rates - inventory will probably increase in Houston.

Inventory is a key for the housing market, and I am watching inventory for the impact of the new tax law and higher mortgage rates on housing.   At the beginning of 2018, I expected national inventory will be up YoY at the end of 2018 (but still to be somewhat low).

Also note that inventory in Seattle was up 211% year-over-year in November, and Denver up 47% YoY (not graphed)!

by Calculated Risk on 12/18/2018 02:18:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in November

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.23 million in November, virtually unchanged from October’s preliminary pace (which based on local realtor/MLS data seemed low) and down 8.7% from last November’s seasonally adjusted pace.

On the inventory front, local realtor/MLS data, as well as data from other inventory trackers, suggest that the inventory of existing homes for sale in November was up by about 4.8% from last November.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up about 4.1% from last November.

CR Note: The NAR is scheduled to release November existing home sales tomorrow, Wednesday, Dec 19th. The consensus is that the NAR will report sales of 5.19 million SAAR.

by Calculated Risk on 12/18/2018 12:08:00 PM

From Professor Tim Duy at Fed Watch: Fed Stuck In An Uncomfortable Situation

The Federal Reserve faces a most uncomfortable confluence of events as central bankers begin their two-day meeting to ponder the path of rate policy. In a nutshell, equities continued to struggle in the midst of fairly solid data as President Trump complains yet again about rate hikes while stoking the uncertainty that appears at least partly if not mostly to blame for the volatile equity markets. Yes, I know, it’s a lot to follow. Hopefully I can break it down into more manageable pieces.
…
Bottom Line: The baseline case is for a dovish hike that basically sends the message that the data is consistent with another rate hike but IF the economy turns slower more quickly than anticipated, this will be the last hike for some time if not the last hike of the cycle. The risk is that the Fed skips this meeting and leaves January open IF the data continues to support a hike. It is worth thinking about what the Fed would need to do to offset the impacts Trumpian uncertainty should that bleed over from Wall Street to Main Street.

CR Note: Duy thinks it is likely the FOMC will "Hike rates 25 basis points to push rates at the edge of the lower range of neutral estimates" and 'Drop “further gradual increases” for language that imparts much more uncertainty about the future path of rate hikes.' This would be a "dovish hike".

by Calculated Risk on 12/18/2018 09:14:00 AM

Earlier: Housing Starts Increased to 1.256 Million Annual Rate in November

Total housing starts in November were above expectations (due to the volatile multi-family sector), and starts for September and October were revised up, combined.

The housing starts report released this morning showed starts were up 3.2% in November compared to October (October starts were revised down), and starts were down 3.6% year-over-year compared to November 2017.

Single family starts were down 13.2% year-over-year.  This was the weakest month for single family starts since May 2017.

This first graph shows the month to month comparison for total starts between 2017 (blue) and 2018 (red).

Click on graph for larger image.

Starts were down 3.6% in October compared to October 2017.

Through eleven months, starts are up 5.1% year-to-date compared to the same period in 2017.   That is a decent increase.

Single family starts are up 3.9% year-to-date.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily for several years following the great recession - but turned down, and has moved sideways recently.  Completions (red line) had lagged behind - however completions and starts are at about the same level now (more deliveries). 

As I've been noting for a few years, the significant growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR) - however multi-family has picked up a little recently.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions.

by Calculated Risk on 12/18/2018 08:39:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in November were at a seasonally adjusted annual rate of 1,256,000. This is 3.2 percent above the revised October estimate of 1,217,000, but is 3.6 percent below the November 2017 rate of 1,303,000. Single‐family housing starts in November were at a rate of 824,000; this is 4.6 percent below the revised October figure of 864,000. The November rate for units in buildings with five units or more was 417,000.

Building Permits:
Privately‐owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,328,000. This is 5.0 percent above the revised October rate of 1,265,000 and is 0.4 percent above the November 2017 rate of 1,323,000. Single‐family authorizations in November were at a rate of 848,000; this is 0.1 percent above the revised October figure of 847,000. Authorizations of units in buildings with five units or more were at a rate of 441,000 in November.
emphasis added

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 November compared to October.   Multi-family starts were up 22% year-over-year in November.

Multi-family is volatile month-to-month, and  has been mostly moving sideways the last few years.

Single-family starts (blue) decreased in November, and were down 13% 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 eventual recovery (but still historically low).

Total housing starts in November were above expectations (due to multi-family), and starts for September and October were revised up, combined.

I'll have more later ...

by Calculated Risk on 12/17/2018 07:12:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Little-Changed Despite Market Gains

Mortgage rates were fairly flat yet again today. Unlike Friday, today's market movement made a case for a bit of a drop. "Market gains" mean different things when talking about bonds/rates (as opposed to stocks). In today's case, bond markets improved while stocks lost ground.
...
we head into tomorrow at a slight advantage in terms of mortgage rates. In other words, if underlying bond markets were to hold completely flat overnight, the average lender would be able to offer slightly improved terms in the morning. Lenders who already repriced today (there were a few of them) would be the exception. [30YR FIXED - 4.75%]
emphasis added

Tuesday:
• At 8:30 AM ET, Housing Starts for November. The consensus is for 1.222 million SAAR, down from 1.228 million SAAR.

by Calculated Risk on 12/17/2018 02:20:00 PM

From Pacific Union chief economist Selma Hepp: Bay Area Housing Inventory Again Posted a Solid Increase in November

• Overall Bay Area home sales (single-family homes and condominiums) declined by 17 percent year over year in November, with all counties and price ranges posting decreases.

• Year to date, total 2018 sales are 5 percent below last year; however, sales of homes priced higher than $1 million are still trending above 2017 levels.

• Some communities — particularly Marin County’s San Anselmo and a few others in San Mateo and Contra Costa counties — continued to post more sales compared with last year.

• Inventory jumped by 27 percent year over year in November, with homes priced below $1 million up by 27 percent, homes priced between $1 million and $2 million up by 39 percent, and homes priced above $2 million up by 9 percent.
...
• Most of the inventory increases and price reductions were in areas that lack access to employment centers and transit corridors.

by Calculated Risk on 12/17/2018 12:05:00 PM

The consensus is that the Fed will increase the Fed Funds Rate 25bps at the meeting this week, however the tone of the statement and press conference will likely be more dovish.   There might be some dovish dissent at this meeting.

Observers will be looking for signs of a pause in the rate hikes - possibly even in Q1 - and also for a reduction in the number of projected hikes in 2019.

Here are the September FOMC projections.

Current projections for Q4 GDP are in mid-to-high 2% range. GDP increased at a 2.2% real annual rate in Q1, 4.2% in Q2, and 3.5% in Q3.   The FOMC is projecting Q4 over the previous Q4¹, and using the current projections for Q4, this projects to around 3.1% to 3.2% for 2018.

However, most analysts expect growth to slow more than expected in 2019, and the FOMC might revise down projections for GDP in 2019.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2018	2019	2020
Sep 2018	3.0 to 3.2	2.4 to 2.7	1.8 to 2.1
Jun 2018	2.7 to 3.0	2.2 to 2.6	1.8 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.7% in November. So the unemployment rate projection for 2018 will probably be unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2018	2019	2020
Sep 2018	3.7	3.4 to 3.6	3.4 to 3.8
Jun 2018	3.6 to 3.7	3.4 to 3.5	3.4 to 3.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October, PCE inflation was up 2.0% from October 2017.  This is at the bottom of the projected range.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2018	2019	2020
Sep 2018	2.0 to 2.1	2.0 to 2.1	2.1 to 2.2
Jun 2018	2.0 to 2.1	2.0 to 2.2	2.1 to 2.2

PCE core inflation was up 1.8% in October year-over-year. Core PCE inflation might be revised down  for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2018	2019	2020
Sep 2018	1.9 to 2.0	2.0 to 2.1	2.1 to 2.2
Jun 2018	1.9 to 2.0	2.0 to 2.2	2.1 to 2.2

In general the data has been close, but somewhat softer, than the FOMC's September projections.

by Calculated Risk on 12/17/2018 10:05:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 56 in December, down from 60 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Drops Four Points Amid Concerns Over Housing Affordability

Builder confidence in the market for newly-built single-family homes fell four points to 56 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) as concerns over housing affordability persist. Although this is the lowest HMI reading since May 2015, builder sentiment remains in positive territory.

“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”

“The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market,” said NAHB Chief Economist Robert Dietz. “This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”
...
All the HMI indices posted declines. The index measuring current sales conditions fell six points to 61, the component gauging expectations in the next six months dropped four points to 61, and the metric charting buyer traffic edged down two points to 43.

Looking at the three-month moving averages for regional HMI scores, the Midwest dropped two points to 55; the West and South both fell three points to 68 and 65, respectively; and the Northeast registered an eight-point drop to 50.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was well below the consensus forecast and the lowest level for this index since 2015.

by Calculated Risk on 12/17/2018 08:35:00 AM

From the NY Fed: Empire State Manufacturing Survey

Business activity grew at a slower pace than in recent months in New York State, according to firms responding to the December 2018 Empire State Manufacturing Survey. The headline general business conditions index fell twelve points to 10.9.
…
The index for number of employees jumped twelve points to 26.1, indicating very strong growth in employment levels, while the average workweek index was little changed at 8.0.
emphasis added

This was well below the consensus forecast, and the weakest reading since May 2017.