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Wednesday, February 20, 2019

California Existing Homes in January: "Home sales fall to lowest level in more than 10 years"

by Calculated Risk on 2/20/2019 03:31:00 PM

The CAR reported: California home sales fall to lowest level in more than 10 years, C.A.R. reports

Housing demand in California remained subdued for the ninth consecutive month in January as economic and market uncertainties sent home sales to their lowest level since April 2008, 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 357,730 units in January, 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 2019 if sales maintained the January pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

January’s sales figure was down 3.9 percent from the revised 372,260 level in December and down 12.6 percent from home sales in January 2018 of 409,520. January marked the ninth consecutive month of decline and the sixth month in a row that sales were below 400,000, dipping to the lowest level since April 2008.

“California continued to move toward a more balanced market as we see buyers having greater negotiating power and sellers making concessions to get their homes sold as inventory grows,” said C.A.R. President Jared Martin. “While interest rates have dropped down to the lowest point in 10 months, potential buyers are putting their homeownership plans on hold as they wait out further price adjustments.”
...
“While we expected the federal government shutdown during most of January to temporarily interrupt closings because of a delay in loan approvals and income verifications, the impact on January’s home sales was minimal,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “The decline in sales was more indicative of demand side issues and was broad and across all price categories and regions of the state. Moreover, growing inventory over the past few months has not translated into more sales.”
...
Statewide active listings rose for the 10th consecutive month after nearly three straight years of declines, increasing 27 percent from the previous year.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, increased year-to-year from 3.6 months in January 2018 to 4.6 months in January 2019. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate. The jump in the UII from a year ago can be attributed to the double-digit sales decline and the sharp increase in active listings.
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-18-5.18.3%
Jun-18-0.5%8.1%
Jul-180.0%11.9%
Aug-182.1%17.2%
Sep-181.1%20.4%
Oct-182.8%28%
Nov-184.2%31%
Dec-185.5%30.6%
Jan-196.6%127%
1Estimate from Tom Lawler

FOMC Minutes: "A variety of considerations that supported a patient approach to monetary policy"

by Calculated Risk on 2/20/2019 02:07:00 PM

From the Fed: Minutes of the Federal Open Market Committee, January 29-30, 2019. A few excerpts:

Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve's balance sheet.

Participants pointed to a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook. With regard to the domestic economic picture, additional data would help policymakers gauge the trajectory of business and consumer sentiment, whether the recent softness in core and total inflation and inflation compensation would persist, and the effect of the tightening of financial conditions on aggregate demand. Information arriving in coming months could also shed light on the effects of the recent partial federal government shutdown on the U.S. economy and on the results of the budget negotiations occurring in the wake of the shutdown, including the possible implications for the path of fiscal policy. A patient approach would have the added benefit of giving policymakers an opportunity to judge the response of economic activity and inflation to the recent steps taken to normalize the stance of monetary policy. Furthermore, a patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China.

Participants noted that maintaining the current target range for the federal funds rate for a time posed few risks at this point. The current level of the federal funds rate was at the lower end of the range of estimates of the neutral policy rate. Moreover, inflation pressures were muted, and asset valuations were less stretched than they had been a few months earlier. Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year; several of these participants argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook. Several other participants indicated that, if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year.

Participants observed that a patient posture in these circumstances was consistent with their general approach to setting the stance of policy, in which they were importantly guided by the implications of incoming data for the economic outlook. Some participants noted that, while global economic and financial developments had been important factors leading to a patient monetary policy posture, those developments mattered because they affected assessments of the policy rate path most consistent with achievement of the Committee's dual-mandate goals of maximum employment and price stability. Many participants observed that if uncertainty abated, the Committee would need to reassess the characterization of monetary policy as "patient" and might then use different statement language.
emphasis added

Phoenix Real Estate in January: Sales down 12% YoY, Active Inventory up 10% YoY

by Calculated Risk on 2/20/2019 11:59:00 AM

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 5,357 from 6,082 in January 2018. Sales were down 16.3% from December, and down 11.9% from January 2018.

2) Active inventory was at 18,990, up from 17,330 in January 2018. This is up 9.6% year-over-year.  This is the third consecutive month with a YoY increase in active inventory.

The last three months - with a YoY increase - followed twenty-four consecutive months with a YoY decrease in inventory in Phoenix.

Months of supply increased from 3.23 in December to 4.28 in January. This is still somewhat low (also January is seasonally a slow sales month).

AIA: "Strong start to 2019 for architecture billings"

by Calculated Risk on 2/20/2019 09:58:00 AM

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

From the AIA: Strong start to 2019 for architecture billings

Starting the year on a strong note, architecture firm billings growth strengthened in January to a level not seen in the previous twelve months according to a new report released today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for January was 55.3 compared to 51.0 in December. Indicators of work in the pipeline, including inquiries into new projects and the value of new design contracts, also strengthened in January.

“The government shutdown affected architecture firms but doesn’t appear to have created a slowdown in the profession,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “While AIA did hear from a few firms that were experiencing significant cash flow issues due to the shutdown, the data suggests that the majority of firms had no long-term impact.”
...
• Regional averages: South (54.7), Midwest (54.4), Northeast (52.4), West (51.5)

• Sector index breakdown: mixed practice (53.8), institutional (52.9), commercial/industrial (52.6), multi-family residential (52.6)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 55.3 in January, up from 51.0 in December. 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.  This index has been positive for 16 consecutive months, suggesting a further increase in CRE investment in 2019.

MBA: Mortgage Applications Increased in Latest Weekly Survey

by Calculated Risk on 2/20/2019 07:00:00 AM

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

Mortgage applications increased 3.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 15, 2019.

... The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 3 percent higher than the same week one year ago.
...
“Mortgage rates held steady on mixed economic news, as core inflation remained firm, while retail sales in December were much weaker than expected. However, overall application activity picked up over the week,” said Joel Kan, MBA’s Associate Vice President of Industry Surveys and Forecasts. “After four consecutive declines, purchase applications increased almost 2 percent over the week and 2.5 percent compared to a year ago – showing some promise as we edge closer to the spring homebuying season.”

Added Kan, “Most rates remained close to 10-month lows, which allowed some borrowers with an incentive to refinance to capitalize. The 30-year fixed rate was essentially unchanged at 4.66 percent.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.66 percent from 4.65 percent, with points decreasing to 0.42 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

Rates would have to fall further for a significant increase in refinance activity.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 3% year-over-year.

Tuesday, February 19, 2019

Wednesday: FOMC Minutes

by Calculated Risk on 2/19/2019 07:50:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Sticking Close to Long-Term Lows

Mortgage rates fell modestly today, making it the 7th straight business day where they've moved in the opposite direction from the previous day. [30YR FIXED 4.375 - 4.5%]
emphasis added
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• During the day, The AIA's Architecture Billings Index for January (a leading indicator for commercial real estate).

• At 2:00 PM, FOMC Minutes, Meeting of January 29-30, 2019

Sacramento Housing in January: Sales Down 21% YoY, Active Inventory up 25% YoY

by Calculated Risk on 2/19/2019 06:06:00 PM

From SacRealtor.org: January 2019 Statistics – Sacramento Housing Market – Single Family Homes

The month closed with 894 total sales, a 19% decrease from the 1,104 sales of December. Compared to the same month last year (1,129), the current figure is down 20.8%. This month marks the lowest amount of sales for a January in over 10 years. January 2008 saw only 739 sales.
...
The Active Listing Inventory decreased, falling 2.5% from 2,149 to 2,095 units. The Months of Inventory increased 21.1% from 1.9 to 2.3 Months. [Note: Compared to January 2018, inventory is up 24.9%] .
...
The Average DOM (days on market) increased again, rising from 38 to 40. The Median DOM also increased, rising from 25 to 27. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.”
emphasis added
CR Note: Inventory is still low - months of inventory is at 2.3 months, probably closer to 4 months would be normal - however inventory is up significantly year-over-year in Sacramento (but not as large a YoY increase as in December).

Lawler: Early Read on Existing Home Sales in January

by Calculated Risk on 2/19/2019 03:15:00 PM

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

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.92 million in January, down 1.0% from December’s preliminary pace and down 8.6% from last January’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 at the end of January was up 6.6% from last January.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 3.0% from last January.

Note: In the upcoming release the NAR will incorporate updated seasonal adjustment factors (as it does every year), which will alter monthly seasonally adjusted sales for the past few years.

CR Note: Existing home sales for January are scheduled to be released on Thursday, Feb 21st. The consensus is for sales of 5.05 million SAAR.

Las Vegas: Convention Attendance and Visitor Traffic Declined Slightly in 2018

by Calculated Risk on 2/19/2019 11:31:00 AM

During the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic recovered to new record highs.

However, in 2018, visitor traffic declined 0.2% compared to 2017, but was still 7.5% above the pre-recession peak.

Convention attendance declined 2.2% in 2018 from the record high in 2017.  Here is the data from the Las Vegas Convention and Visitors Authority.  

Las Vegas Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale). 

Historically, declines in Las Vegas visitor traffic have been associated with economic weakness, so the declines in 2017 and 2018 are a little concerning for the Vegas area.

NAHB: Builder Confidence Increases in February

by Calculated Risk on 2/19/2019 10:06:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 62 in February, up from 58 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Lower Interest Rates, Rising Consumer Confidence Boost Builder Sentiment

Builder confidence in the market for newly-built single-family homes rose four points to 62 in February, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today in Las Vegas during the 75th annual International Builders’ Show.

“Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.”

February marked the second consecutive month in which all the HMI indices posted gains. The index measuring current sales conditions rose three points to 67, the component gauging expectations in the next six months increased five points to 68 and the metric charting buyer traffic moved up four points to 48.

“Builder confidence levels moved up in tandem with growing consumer confidence and falling interest rates,” said NAHB Chief Economist Robert Dietz. “The five-point jump on the six-month sales expectation for the HMI is due to mortgage interest rates dropping from about 5 percent in November to 4.4 percent this week. However, affordability remains a critical issue. Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”

Looking at the three-month moving averages for regional HMI scores, the South posted a one-point gain to 63 while the Northeast dropped two points to 43. The Midwest and West each remained unchanged at 52 and 67, respectively.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast.