by Calculated Risk on 12/21/2018 12:15:00 PM

Reis reported that the apartment vacancy rate was at 4.8% in Q4 2018, unchanged from 4.8% in Q3, and up from 4.6% in Q4 2017.  This ties last month as the highest vacancy rate since Q3 2012. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.1% in 2016.

From Reis:

The apartment vacancy rate was flat in the quarter at 4.8%. At year-end 2017 it was 4.6%, while at year-end 2016 it was 4.2%.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.8% in the fourth quarter. At $1,440 per unit (market) and $1,370 per unit (effective), the average rents have increased 4.9% and 4.6%, respectively, from the fourth quarter of 2017.

Net absorption was 39,732 units, lower than the previous quarter’s absorption of 50,502 units and below the average quarterly absorption of 2017 of 46,926 units. Construction was 49,944 units, also below the third quarter’s 62,313 units and below the 2017 quarterly average of 61,869 units.
...
Apartment construction started to accelerate in 2017 and has remained elevated throughout 2018. This had raised concerns that the apartment market was becoming overbuilt. Yet consistently, apartment occupancy growth has nearly kept pace with supply growth, as demand for apartments has been robust throughout 2018. Not only has job growth supported apartment demand, but the weaker housing market has also benefitted the apartment market: existing home sales climbed in October and November but had fallen in eight of the previous ten months and is down 7% from a year ago. Although mortgage rates have fallen over the last few weeks pushing applications up a bit, the housing market could continue to suffer given the recent stock market declines that have sent jitters throughout the market. Moreover, last year’s tax reform that doubled the standard deduction reduced the incentive to buy a home, which has also helped the apartment market.

We still expect construction to remain robust in 2019 before completions drop off in 2020. Occupancy is expected to remain positive, although vacancy rates are expected to increase, as new supply will outpace demand growth in most metros. That said, stronger apartment demand in a number of metros could push developers to file more permits, which could extend the construction cycle. This is especially likely in New York and Suburban Virginia where Amazon is building two new headquarters and creating 25,000 jobs over ten years.

Our outlook remains favorable given the current conditions of positive job growth and tepid housing sales. The recent momentum should keep rent growth positive even as vacancy rates are likely to edge up a bit in the next few quarters.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had mostly moved sideways for the last several years.  However, the vacancy rate has bottomed and is now increasing.  With more supply coming on line - and less favorable demographics - the vacancy rate will probably continue to increase over the next year.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 12/21/2018 11:00:00 AM

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

The Federal Reserve Bank of Kansas City released the December 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 slowed, while expectations for future activity edged slightly higher.

“Factories in our region reported a drop in production in December but continued growth in orders, employment, and capital spending” said Wilkerson. “Several contacts noted difficulties with weather or with having enough workers to meet demand.”
...
The month-over-month composite index was 3 in December, down from 15 in November and 8 in October. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The slowdown in factory growth was driven by both durable and nondurable goods producers, particularly metals, electronics, and petroleum/coal products. Most month-over-month indexes fell from the previous month’s reading, although the majority remained in positive territory. Exceptions included production, dropping from 24 to -18, and shipments, falling from 31 to -3, and new orders for exports, decreasing from 6 to -7. The employment index edged slightly higher, and new orders and order backlog indexes remained moderately positive. The materials inventory index rose from 15 to 19 and the finished goods inventory index also moved up.
emphasis added

So far, all of the regional surveys have indicated slower growth in December than in November.

by Calculated Risk on 12/21/2018 10:11:00 AM

The BEA released the Personal Income and Outlays report for November:

Personal income increased $40.2 billion (0.2 percent) in November according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $37.8 billion (0.2 percent) and personal consumption expenditures (PCE) increased $54.4 billion (0.4 percent).

Real DPI increased 0.2 percent in November and real PCE increased 0.3 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The November PCE price index increased 1.8 percent year-over-year and the September PCE price index, excluding food and energy, increased 1.9 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through November 2018 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was below expectations,  and the increase in PCE was above expectations.

Using the two-month method to estimate Q4 PCE growth, PCE was increasing at a 3.6% annual rate in Q4 2018. (using the mid-month method, PCE was also increasing at 3.6%). This suggests solid PCE growth in Q4.

by Calculated Risk on 12/21/2018 09:01:00 AM

In previous shutdowns, Government data from the BLS, BEA and Census Bureau were delayed. Data from the Federal Reserve was released on time.

As an example, if the government shuts down, I expect New Home sales - currently scheduled for next Thursday - to be delayed. Unemployment claims will probably be released on time.

The following week, the key report that will probably be delayed is the employment report for December.

If the shutdown continues, then data gathering will be impacted - and economic observers will be flying blind.

In addition, any shutdown will be expensive and impact Q1 GDP. Hopefully the shutdown will be avoided.

by Calculated Risk on 12/21/2018 08:34:00 AM

From the BEA: Gross Domestic Product, 3rd quarter 2018 (third estimate); Corporate Profits, 3rd quarter 2018 (revised estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.4 percent in the third quarter of 2018, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 3.5 percent. With this third estimate for the third quarter, personal consumption expenditures (PCE) and exports were revised down, and private inventory investment was revised up; the general picture of economic growth remains the same
emphasis added

PCE growth was revised down from 3.6% to 3.5%. Residential investment was revised down from -2.6% to -3.6%. This was slightly below the consensus forecast.

Here is a Comparison of Third and Second Estimates.

by Calculated Risk on 12/20/2018 08:29:00 PM

Friday:
• At 8:30 AM ET, Durable Goods Orders for November from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

• At 8:30 AM, Gross Domestic Product, 3nd quarter 2018 (Third estimate). The consensus is that real GDP increased 3.5% annualized in Q3, unchanged from the second estimate of GDP.

• At 10:00 AM, Personal Income and Outlays for November. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (Final for December). The consensus is for a reading of 97.5.

• Also at 10:00 AM, State Employment and Unemployment (Monthly) for November 2018

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

by Calculated Risk on 12/20/2018 02:22:00 PM

The CAR reported: California housing market sputters in November

California home sales remained on a downward trend for the seventh consecutive month in November as prospective buyers continued to wait out the market, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 381,400 units in November, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2018 if sales maintained the November pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

November’s sales figure was down 3.9 percent from the revised 397,060 level in October and down 13.4 percent from home sales in November 2017 of a revised 440,340. November marked the fourth month in a row that sales were below 400,000.
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Statewide active listings rose for the eighth consecutive month after nearly three straight years of declines, increasing 31 percent from the previous year. November’s listings increase was the largest since April 2014.

The unsold inventory index, which is a ratio of inventory over sales, increased year-to-year from 2.9 months in November 2017 to 3.7 months in November 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.
emphasis added

Here is some inventory data from the NAR and CAR (ht Tom Lawler).

YOY % Change, Existing SF Homes for Sale
	NAR (National)	CAR (California)
Sep-17	-8.4%	-11.2%
Oct-17	-10.4%	-11.5%
Nov-17	-9.7%	-11.5%
Dec-17	-11.5%	-12.0%
Jan-18	-9.5%	-6.6%
Feb-18	-8.6%	-1.3%
Mar-18	-7.2%	-1.0%
Apr-18	-6.3%	1.9%
May-18	-5.1	8.3%
Jun-18	-0.5%	8.1%
Jul-18	0.0%	11.9%
Aug-18	2.1%	17.2%
Sep-18	1.1%	20.4%
Oct-18	2.8%	28%
Nov-18	4.2%	31%

by Calculated Risk on 12/20/2018 02:01:00 PM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales declined to 6,515 from 7,074 in November 2017. Sales were down 9.3% from October (report has a typo and says "up"), and down 7.9% from November 2017.

2) Active inventory was at 18,162, up slightly from 18,118 in November 2017.   This is up 0.2% year-over-year.  This is the YoY increase in active inventory since 2016.

This small YoY increase followed twenty-four consecutive months with a YoY decrease in inventory in Phoenix.

Months of supply increased from 3.03 in October to 3.30 in November. This is still low.

by Calculated Risk on 12/20/2018 11:04:00 AM

From Black Knight: Black Knight’s First Look: November Prepayment Activity Hits 10-Year Low as Refinances Fall and Housing Turnover Sees Seasonal Decline

• Prepayment activity fell 14 percent month-over-month and 29 percent year-over-year to its lowest level since November 2008

• Historically, prepayments were driven primarily by refinance activity but, more recently, the primary driver has become housing sales

• The last time the prepayment rate was this low – in the heat of the financial crisis – interest rates were above 6 percent and purchase lending had fallen by more than 50 percent in a 24-month span

• Delinquencies saw a slight seasonal increase in November, but remain 19 percent below last year’s level

• Serious delinquencies (90 or more days past due) also increased slightly for the month; now stand at 510,00

• Foreclosure starts fell by 11 percent month-over-month, with an estimated 45,200 starts in November

• A slight uptick in foreclosure inventory was offset by a month-over-month increase in the number of outstanding mortgages, resulting in a net decline in the national foreclosure rate

According to Black Knight's First Look report for November, the percent of loans delinquent increased 1.8% in November compared to October, and decreased 18.5% year-over-year.

The percent of loans in the foreclosure process decreased 0.2% in November and were down 22.0% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.71% in November, up from 3.64% in October.

The percent of loans in the foreclosure process decreased slightly in November to 0.52% from 0.52% in October.

The number of delinquent properties, but not in foreclosure, is down 399,000 properties year-over-year, and the number of properties in the foreclosure process is down 69,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Nov 2018	Oct 2018	Nov 2017	Nov 2016
Delinquent	3.71%	3.64%	4.55%	4.46%
In Foreclosure	0.52%	0.52%	0.66%	0.98%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	1,925,000	1,884,000	2,324,000	2,263,000
Number of properties in foreclosure pre-sale inventory:	268,000	267,000	337,000	498,000
Total Properties	2,193,000	2,152,000	2,661,000	2,761,000

by Calculated Risk on 12/20/2018 08:53:00 AM

From the Philly Fed: December 2018 Manufacturing Business Outlook Survey

Manufacturing activity in the region continued to grow but remained subdued, according to results from the December Manufacturing Business Outlook Survey. The survey’s broad indicators were positive, but their movements were mixed this month: The general activity and shipments indicators fell from their readings last month, while the indicators for new orders and employment increased. The firms remained generally optimistic about future growth.

The diffusion index for current general activity decreased from 12.9 in November to 9.4 this month, its lowest reading since August 2016 … The firms continued to report overall higher employment. Over 24 percent of the responding firms reported increases in employment this month, while 6 percent of the firms reported decreases in employment. The current employment index remained positive and edged 2 points higher to 18.3. The current workweek index fell 6 points to 0.5, its lowest reading in 26 months.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through December), and five Fed surveys are averaged (blue, through November) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

This suggests the ISM manufacturing index will show expansion again in December, but will likely be lower than in November.