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Wednesday, February 24, 2021

A few Comments on January New Home Sales

by Calculated Risk on 2/24/2021 10:47:00 AM

New home sales for January were reported at 923,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up.

This was well above consensus expectations for January. Clearly low mortgages rates, low existing home supply, and favorable demographics (something I wrote about many times over the last decade) have boosted sales.  A surging stock market has probably helped new home sales too.

Another factor in the strong headline sales rate, over the second half of 2020, was the delay in the selling season.   Usually the strongest sales are in the March to June time frame, but last year the strongest sales months were later in the year - so the usual seasonal factors boosted sales in late Summer, Fall in 2020.

Earlier: New Home Sales increase to 923,000 Annual Rate in January.

New Home Sales 2018 2019Click on graph for larger image.

This graph shows new home sales for 2020 and 2021 by month (Seasonally Adjusted Annual Rate).

The year-over-year comparisons are easy in early 2021 - especially in March and April.

However, sales will likely be down year-over-year in August through October - since the selling season was delayed in 2020.

And on inventory: note that completed inventory is near record lows, but inventory under construction has closer to normal.

New Home Sales, Months by Stage of ConstructionOn inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the months of supply by stage of construction..

The inventory of completed homes for sale was at 42 thousand in January, just above the record low of 37 thousand in 2013.  That is about 0.5 months of completed supply.

The inventory of new homes under construction, and not started, is about 3.5 months - just a little below normal.

New Home Sales increase to 923,000 Annual Rate in January

by Calculated Risk on 2/24/2021 10:11:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 923 thousand.

The previous three months were revised up.

Sales of new single-family houses in January 2021 were at a seasonally adjusted annual rate of 923,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3 percent above the revised December rate of 885,000 and is 19.3 percent above the January 2020 estimate of 774,000.
emphasis added
New Home SalesClick on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

The last eight months saw the highest sales rates since 2006.   This was strong year-over-year growth.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply decreased in January to 4.0 months from 4.1 months in December.

The all time record high was 12.1 months of supply in January 2009. The all time record low is 3.5 months, most recently in October 2020.

This is at the low end of the normal range (about 4 to 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of January was 307,000. This represents a supply of 4.0 months at the current sales rate. "
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is low, and the combined total of completed and under construction is a little lower than normal.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In January 2021 (red column), 70 thousand new homes were sold (NSA). Last year, 59 thousand homes were sold in January

The all time high for January was 92 thousand in 2005, and the all time low for January was 21 thousand in 2011.

This was well above expectations, and sales in the three previous months were revised up. I'll have more later today.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Calculated Risk on 2/24/2021 07:00:00 AM

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

Mortgage applications decreased 11.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 19, 2021.

... The Refinance Index decreased 11 percent from the previous week and was 50 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 12 percent from one week earlier. The unadjusted Purchase Index decreased 8 percent compared with the previous week and was 7 percent higher than the same week one year ago.

“Mortgage rates have increased in six of the last eight weeks, with the benchmark 30-year fixed rate last week climbing above 3 percent to its highest level since September 2020. As a result of these higher rates, overall refinance activity fell 11 percent to its lowest level since December 2020, but remained 50 percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Additionally, the severe winter weather in Texas affected many households and lenders, causing more than a 40 percent drop in both purchase and refinance applications in the state last week.”

Added Kan, “The housing market in most of the country remains strong, with activity last week 7 percent higher than a year ago. The average loan size of purchase applications increased to a record $418,000, in line with the accelerating home-price growth caused by very low inventory levels.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.08 percent from 2.98 percent, with points increasing to 0.46 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. T
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

The refinance index has been volatile recently depending on rates.

With near record low rates, the index remains up significantly from last year (but will be down year-over-year in early March - since rates fell sharply at the beginning of the pandemic).

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

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

Note: Red is a four-week average (blue is weekly).

Tuesday, February 23, 2021

Wednesday: New Home Sales, Fed Chair Powell

by Calculated Risk on 2/23/2021 09:08:00 PM

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

• At 10:00 AM, New Home Sales for January from the Census Bureau. The consensus is for 855 thousand SAAR, up from 842 thousand in December.

• Also at 10:00 AM, Testimony, Fed Chair Jerome Powell, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

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

February 23 COVID-19 Test Results and Vaccinations

by Calculated Risk on 2/23/2021 07:04:00 PM

SPECIAL NOTE: The Covid Tracking Project will end daily updates on March 7th.

From Bloomberg on vaccinations as of Feb 23rd.

"In the U.S., more Americans have now received at least one dose than have tested positive for the virus since the pandemic began. So far, 65 million doses have been given. In the last week, an average of 1.28 million doses per day were administered.​"
Here is the CDC COVID Data Tracker. This site has data on vaccinations, cases and more.

The US is averaged 1.35 million tests per day over the last week.  The percent positive over the last 7 days was 4.8%.

Based on the experience of other countries, for adequate test-and-trace (and isolation) to reduce infections, the percent positive needs to below 1%, so the US has far too many daily cases - and percent positive - to do effective test-and-trace.

There were 1,202,838 test results reported over the last 24 hours.

There were 67,879 positive tests.

Over 60,000 US deaths have been reported in February. See the graph on US Daily Deaths here.

This data is from the COVID Tracking Project.

And check out COVID Act Now to see how each state is doing. (updated link to new site)

COVID-19 Positive Tests per DayClick on graph for larger image.

This graph shows the 7 day average of positive tests reported and daily hospitalizations. 

The dashed line is the post-summer surge low for hospitalizations.

Zillow Case-Shiller House Price Forecast: "More strong growth in the months ahead", 10.9% YoY in January

by Calculated Risk on 2/23/2021 04:56:00 PM

The Case-Shiller house price indexes for December were released today. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Matthew Speakman at Zillow: December 2020 Case-Shiller Results & January Forecast: An Exclamation Point on 2020

Adding an exclamation point to a year unlike any other, home prices continued their powerful surge higher in December, setting the stage for more strong growth in the months ahead.
...
The factors that have, for months, stoked competition for homes remained firmly in place in December. A wave of eager buyers – many of whom are looking to enter the market for the first time – sought to capitalize on record-low mortgage rates and snap up the relatively few homes available for sale, leading homes to fly off the shelves and prices to continue to grow. In some major markets, homes are going under contract more than a month faster than they were this time last year. This forces would-be buyers to move very quickly to put an offer in on a home they desire, increases the likelihood that multiple offers will be fielded by the seller and ultimately places more upward pressure on prices. Looking ahead, with mortgage rates remaining relatively low and the wave of eager buyers continuing to swell, it’s unlikely that this competition for housing, and subsequent strong price appreciation, will meaningfully abate in the near future.

Monthly growth in January as reported by Case-Shiller is expected to slow slightly from December in all three main indices, while annual growth is expected to accelerate across the board. S&P Dow Jones Indices is expected to release data for the January S&P CoreLogic Case-Shiller Indices on Tuesday, March 30.
emphasis added
Zillow forecast for Case-ShillerThe Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 10.9% in January, up from 10.4% in December.

The Zillow forecast is for the 20-City index to be up 10.7% YoY in January from 10.1% in December, and for the 10-City index to increase to be up 10.4% YoY compared to 9.8% YoY in December.

FDIC: Problem Banks Unchanged, Residential REO Declined in Q4

by Calculated Risk on 2/23/2021 03:45:00 PM

The FDIC released the Quarterly Banking Profile for Q4 2020 today:

For the commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC), aggregate net income totaled $59.9 billion in fourth quarter 2020, an increase of $5 billion (9.1 percent) from a year ago. The improvement in quarterly net income was led by a reduction in provision expenses. Financial results for fourth quarter 2020 are included in the FDIC’s latest Quarterly Banking Profile released today.
...
The Deposit Insurance Fund’s Reserve Ratio Declined from the Previous Quarter to 1.29 Percent: The Deposit Insurance Fund totaled $117.9 billion in the fourth quarter, up $1.5 billion from the third quarter. The quarterly increase was led by assessment revenue and interest earned on investment securities held by the fund. The reserve ratio declined by 1 basis point from the previous quarter to 1.29 percent solely as a result of strong estimated insured deposit growth.

Mergers and New Bank Openings Continued in the Fourth Quarter: During the fourth quarter, three new banks opened, 31 institutions were absorbed through mergers, and two banks failed. 5,001 commercial banks and savings institutions filed fourth quarter Call Reports and are insured by the Federal Deposit Insurance Corporation (FDIC) as of December 31, 2020. ... The number of institutions on the FDIC’s “Problem Bank List” remained unchanged from the previous quarter at 56. Total assets of problem banks increased from $53.9 billion in third quarter 2020 to $55.8 billion in fourth quarter 2020.
emphasis added
FDIC Problem Banks Click on graph for larger image.

The FDIC reported the number of problem banks was unchanged.

This graph from the FDIC shows the number of problem banks was unchanged at 56 institutions.

Note: The number of assets for problem banks increased significantly back in 2018 when Deutsche Bank Trust Company Americas was added to the list (it must still be on the list given the assets of problem banks).

FDIC Insured Institution REOThe dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $2.27 billion in Q4 2019 to $1.11 billion in Q4 2020. This is the lowest level of REOs in many years.  (probably declined sharply due to foreclosure moratoriums and forbearance programs).

This graph shows the nominal dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Real House Prices and Price-to-Rent Ratio in December

by Calculated Risk on 2/23/2021 12:48:00 PM

Here is the post earlier on Case-Shiller: Case-Shiller: National House Price Index increased 10.4% year-over-year in December

It has been almost fifteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index (SA), was reported as being 28% above the previous bubble peak. However, in real terms, the National index (SA) is about 2% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 6% below the bubble peak.

The year-over-year growth in prices increased to 10.4% nationally.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $294,000 today adjusted for inflation (47%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA (through December) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).



Real House Prices

Real House PricesThe second graph shows the same two indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to the bubble peak, and the Composite 20 index is back to early 2005.

In real terms, house prices are at 2005 levels.

Note that inflation was negative for a few months earlier this year, and that also boosted real prices.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National and Composite 20 House Price Indexes.

This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio had been moving mostly sideways, but picked up recently.

On a price-to-rent basis, the Case-Shiller National index is back to December 2004 levels, and the Composite 20 index is back to May 2004 levels.

In real terms, prices are back to 2005 levels, and the price-to-rent ratio is back to 2004.

Fed Chair Powell: Semiannual Monetary Policy Report to the Congress

by Calculated Risk on 2/23/2021 10:02:00 AM

From Fed Chair Jerome Powell: Monetary Policy Report – February 2021. A few excerpts:

The initial wave of COVID-19 infections led to a historic contraction in economic activity as a result of both mandatory restrictions and voluntary changes in behavior by households and businesses. The level of gross domestic product (GDP) fell a cumulative 10 percent over the first half of 2020, and the measured unemployment rate spiked to a post–World War II high of 14.8 percent in April. As mandatory restrictions were subsequently relaxed and households and firms adapted to pandemic conditions, many sectors of the economy recovered rapidly and unemployment fell back. Momentum slowed substantially in the late fall and early winter, however, as spending on many services contracted again amid a worsening of the pandemic. All told, GDP is currently estimated to have declined 2.5 percent over the four quarters of last year and payroll employment in January was almost 10 million jobs below pre-pandemic levels, while the unemployment rate remained elevated at 6.3 percent and the labor force participation rate was severely depressed. Job losses have been most severe and unemployment remains particularly elevated among Hispanics, African Americans, and other minority groups as well as those who hold lower-wage jobs.
And on high frequency indicators:
Outside of the labor market, several new high-frequency indicators have been useful in monitoring the massive effects of the COVID-19 pandemic on consumer spending. Weekly data from NPD (a market analytics firm) on nonfood retail sales captured in real time the dramatic and sudden drop in consumption in mid-March; the monthly Census Bureau data recorded that decline only with a lag (figure B, left panel).3 The NPD data also reflected how the income support payments to families, provided by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, rapidly affected consumer spending in mid-April. More recently, the NPD data showed some decline in consumption late last year, followed by a pickup in January after the passage of the most recent fiscal stimulus package. Several nontraditional data sources illustrate that services spending remains depressed as social distancing continues to restrain in-person activity
Fed Services Indicators Click on graph for larger image.

This graph from the report shows a few high frequency indicators (I post several every Monday morning including Hotel Occupancy and TSA data).

Case-Shiller: National House Price Index increased 10.4% year-over-year in December

by Calculated Risk on 2/23/2021 09:13:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

From S&P: S&P Corelogic Case-Shiller Index Reports 10.4% Annual Home Price Gain to End 2020

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 10.4% annual gain in December, up from 9.5% in the previous month. The 10-City Composite annual increase came in at 9.8%, up from 8.9% in the previous month. The 20-City Composite posted a 10.1% year-over-year gain, up from 9.2% in the previous month.

Phoenix, Seattle, and San Diego continued to report the highest year-over-year gains among the 19 cities (excluding Detroit) in December. Phoenix led the way with a 14.4% year-over-year price increase, followed by Seattle with a 13.6% increase and San Diego with a 13.0% increase. Eighteen of the 19 cities reported higher price increases in the year ending December 2020 versus the year ending November 2020.
...
Before seasonal adjustment, the U.S. National Index posted a 0.9% month-over-month increase, while the 10-City and 20-City Composites both posted increases of 0.9% and 0.8% respectively in December. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 1.3%, while the 10-City and 20-City Composites both posted increases of 1.2% and 1.3% respectively. In December, 18 cities (excluding Detroit) reported increases before seasonal adjustment, while all 19 cities reported increases after seasonal adjustment.

“Home prices finished 2020 with double-digit gains, as the National Composite Index rose by 10.4% compared to year-ago levels,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The trend of accelerating prices that began in June 2020 has now reached its seventh month and is also reflected in the 10- and 20-City Composites (up 9.8% and 10.1%, respectively). The market’s strength continues to be broadly-based: 18 of the 19 cities for which we have December data rose, and 18 cities gained more in the 12 months ended in December than they had gained in the 12 months ended in November.
emphasis added
Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is up 1.2% in December (SA) from November.

The Composite 20 index is up 1.3% (SA) in December.

The National index is 28% above the bubble peak (SA), and up 1.3% (SA) in December.  The National index is up 73% from the post-bubble low set in December 2011 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 9.8% compared to December 2019.  The Composite 20 SA is up 10.1% year-over-year.

The National index SA is up 10.4% year-over-year.

Note: According to the data, prices increased in 19 cities month-over-month seasonally adjusted.

Price increases were above expectations.  I'll have more later.