In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, July 17, 2019

CAR on California: "California home sales retreat in June"

by Calculated Risk on 7/17/2019 03:09:00 PM

The CAR reported: California home sales retreat in June, but 2019 housing market outlook revised upward, C.A.R. reports

After rebounding in May, California home sales fell below the benchmark 400,000 level in June as sales declined from both the previous month and year, 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 389,690 units in June, 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 June pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

June’s sales figure was down 4.2 percent from the 406,960 level in May and down 5.1 percent from home sales in June 2018 of 410,800. Sales fell below the 400,000 benchmark again after rebounding in May. Sales have been under the benchmark for 10 of the past 11 months.

“With softer price growth and interest rates at the lowest levels in nearly three years, monthly mortgage payments on a median-priced home have fallen for four straight months. This allows homebuyers to save hundreds of dollars a month on the same home or to potentially consider a slightly more expensive home for the same monthly cost,” said C.A.R. President Jared Martin. “Combined with the long-term benefits of homeownership on personal wealth and quality of life, 2019 is a good time to purchase a home for the long haul.”
...
Active listings, which have been decelerating since December 2018, grew 2.4 percent from a year ago — the smallest increase since April 2018.

The number of homes available for sale has moderated significantly, suggesting that market is getting back toward being more balanced between supply and demand — but inventory remains relatively tight from a historical perspective. The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.4 months in June, up from 3.2 months in May and up from 3.0 months in June 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).   Note that the YoY increase has been slowing in California.

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-184.8%30.6%
Jan-194.6%27%
Feb-193.2%19.2%
Mar-191.8%13.4%
Apr-191.7%10.8%
May-192.7%7.4%
Jun-19NA2.4%

AIA: "Design services demand stalled in June, Project inquiry gains hit a 10-year low"

by Calculated Risk on 7/17/2019 11:24:00 AM

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

From the AIA: Design services demand stalled in June, Project inquiry gains hit a 10-year low

Demand for design services at architecture firms decreased in June in comparison to the previous month, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for June was 49.1, which is down from 50.2 in May. Any score below 50 indicates a decrease in billings. Both the project inquiries index and the design contracts index continued to soften in June but remained positive.

“With billings declining or flat for the last five months, it appears that we are settling in for a period of soft demand for design services,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “With the new design contracts score reaching a 10-month low and the project inquiries score hitting a 10-year low, work in the pipeline may start to get worked off, despite current robust backlogs.”
...
• Regional averages: South (51.9); West (49.3); Midwest (48.9); Northeast (46.1)

• Sector index breakdown: mixed practice (54.3); commercial/industrial (52.3); institutional (47.0); multi-family residential (46.3)
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 49.1 in June, down from 50.2 in May. Anything below 50 indicates contraction 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 10 of the previous 12 months, suggesting some further increase in CRE investment in 2019 - but this is the weakest five month stretch since 2012.

Comments on June Housing Starts

by Calculated Risk on 7/17/2019 08:52:00 AM

Earlier: Housing Starts at 1.253 Million Annual Rate in June

Total housing starts in June were slightly below expectations, and starts for April and May were revised down.

The housing starts report showed starts were down 0.9% in June compared to May, and starts were up 6.2% year-over-year compared to June 2018.

Single family starts were down 0.8% year-over-year, and multi-family starts were up 25.3%.

This first graph shows the month to month comparison for total starts between 2018 (blue) and 2019 (red).

Starts Housing 2017 and 2018Click on graph for larger image.

Starts were up 6.2% in June compared to June 2018.

Year-to-date, starts are down 3.7% compared to the same period in 2018.

Last year, in 2018, starts were strong early in the year, and then fell off in the 2nd half - so the early comparisons this year were the most difficult.

My guess was starts would be down slightly year-over-year in 2019 compared to 2018, but nothing like the YoY declines we saw in February and March. Now it looks like starts might be up slightly in 2019 compared to 2018.

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.

Multifamily Starts and completionsThe 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. 

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).

Single family Starts and completionsThe 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.

Housing Starts at 1.253 Million Annual Rate in June

by Calculated Risk on 7/17/2019 08:38:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in June were at a seasonally adjusted annual rate of 1,253,000. This is 0.9 percent below the revised May estimate of 1,265,000, but is 6.2 percent above the June 2018 rate of 1,180,000. Single‐family housing starts in June were at a rate of 847,000; this is 3.5 percent above the revised May figure of 818,000. The June rate for units in buildings with five units or more was 396,000.

Building Permits:
Privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,220,000. This is 6.1 percent below the revised May rate of 1,299,000 and is 6.6 percent below the June 2018 rate of 1,306,000. Single‐family authorizations in June were at a rate of 813,000; this is 0.4 percent above the revised May figure of 810,000. Authorizations of units in buildings with five units or more were at a rate of 360,000 in June.
emphasis added
Total Housing Starts and Single Family Housing Starts 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) were down in June compared to May.   Multi-family starts were up 24% year-over-year in June.

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

Single-family starts (blue) increased in June, and were down 0.8% year-over-year.

Total Housing Starts and Single Family Housing Starts 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 June were slightly below expectations, and starts for April and May were revised down.

I'll have more later …

MBA: Mortgage Applications Decreased in Latest Weekly Survey

by Calculated Risk on 7/17/2019 07:00:00 AM

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

Mortgage applications decreased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 12, 2019. Last week’s results included an adjustment for the Fourth of July holiday.

... The Refinance Index increased 2 percent from the previous week and was 87 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index increased 21 percent compared with the previous week and was 7 percent higher than the same week one year ago.
...
“Mortgage rates increased across the board, with the 30-year fixed rate mortgage rising to its highest level in a month to 4.12 percent, which is still below this year’s average of 4.45 percent,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Coming out of the July 4th holiday, applications were lower overall, with purchase activity slipping almost 4 percent. Refinance applications increased, with activity reaching its highest level in a month, driven mainly by FHA refinance applications. Historically, government refinance activity lags slightly in response to rate changes.”

Added Kan, “Buyer interest at the start of the second half of the year continues to outpace year ago levels, with activity last week up 7 percent.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.12 percent from 4.04 percent, with points increasing to 0.38 from 0.37 (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.

Mortgage rates have declined from close to 5% late last year to around 4% now.

Just about anyone who bought or refinanced over the last year or so can refinance now.   But it would take another significant decline in rates for a further large increase in refinance activity.

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

According to the MBA, purchase activity is up 7% year-over-year.

Tuesday, July 16, 2019

Wednesday: Housing Starts, Beige Book

by Calculated Risk on 7/16/2019 07:40:00 PM

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

• At 8:30 AM, Housing Starts for June. The consensus is for 1.260 million SAAR, down from 1.269 million SAAR in May.

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

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

Phoenix Real Estate in June: Sales up 2.6% YoY, Active Inventory Down 4% YoY

by Calculated Risk on 7/16/2019 05:36:00 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 increased to 9,313 in June, up from 9,079 in June 2018. Sales were down 9.9% from May 2019 (last month), and up 2.6% from June 2018.

2) Active inventory was at 15,188, down from 15,851 in June 2018. That is down 4.2% year-over-year.  This YoY decline in inventory follows seven consecutive months with a YoY increase in active inventory.

Months of supply increased from 2.07 in May to 2.12 in June. This is low.

Fed Chair Powell: "Monetary Policy in the Post-Crisis Era"

by Calculated Risk on 7/16/2019 01:29:00 PM

From Fed Chair Jerome Powell: Monetary Policy in the Post-Crisis Era. Excerpt:

In our baseline outlook, we expect growth in the United States to remain solid, labor markets to stay strong, and inflation to move back up and run near 2 percent. Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth. In addition, issues such as the U.S. federal debt ceiling and Brexit remain unresolved. FOMC participants have also raised concerns about a more prolonged shortfall in inflation below our 2 percent target. Market-based measures of inflation compensation have shifted down, and some survey-based expectations measures are near the bottom of their historical ranges.

Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance of policy. We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
emphasis added

NAHB: "Builder Confidence Holds Firm in July"

by Calculated Risk on 7/16/2019 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 65 in July, up from 64 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Holds Firm in July

Builder confidence in the market for newly-built single-family homes rose one point to 65 in July, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This marks the sixth consecutive month that sentiment levels have held at a steady range in the low- to mid-60s.

“Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

“Even as builders try to rein in costs, home prices continue to outpace incomes,” said NAHB Chief Economist Robert Dietz. “The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place.”

All the HMI indices inched higher in July. The index measuring current sales conditions rose one point to 72, the component gauging expectations in the next six months moved a single point higher to 71 and the metric charting buyer traffic increased one point to 48. Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was at the consensus forecast.

Industrial Production Unchanged in June

by Calculated Risk on 7/16/2019 09:22:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production was unchanged in June, as increases for both manufacturing and mining offset a decline for utilities. For the second quarter as a whole, industrial production declined at an annual rate of 1.2 percent, its second consecutive quarterly decrease. In June, manufacturing output advanced 0.4 percent. An increase of nearly 3 percent for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.2 percent. The output of utilities fell 3.6 percent as milder-than-usual temperatures in June reduced the demand for air conditioning. The index for mining rose 0.2 percent. At 109.6 percent of its 2012 average, total industrial production was 1.3 percent higher in June than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in June to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2018) average.
emphasis added
Capacity Utilization Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.9% is 1.9% below the average from 1972 to 2017 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

Industrial ProductionThe second graph shows industrial production since 1967.

Industrial production was unchanged in June at 109.2. This is 26% above the recession low, and 4.0% above the pre-recession peak.

The change in industrial production and decrease in capacity utilization were below consensus.