by Calculated Risk on 5/23/2022 02:46:00 PM

CR Note: This analysis is similar to many of my comments in What will Happen with House Prices?

A few excerpts from a BofA research note: High hurdles to rebalance the existing home market .

As the Fed now tries to slow the economy down, housing will be front and center as one of the main interest rate-sensitive sectors.

As we have been writing, mortgage rates have spiked this year to around 5.5% creating a record affordability shock. This should lead to a major pullback in home sales and turnover. However, home prices will likely continue to move higher, and we recently revised up our home price appreciation forecast this year to 15%.

It is hard to understate how tight the housing market is right now. The key metric to gauge the supply-demand imbalance is existing homes months supply, which is at a historically low level of 2.2 months as of April. As we recently pointed out in Fed throwing shade on hot housing market, months supply has a strong historical inverse relationship with % mom home prices. The record tightness therefore helps explain the record gains in home prices.

Click on table for larger image.

Looking at the long history, a balanced market is likely closer to 5-7 months. To get from 2 months to 5 months would take some pretty big changes and swings in the existing home market. To assess this, we create a matrix for months supply with varying assumptions for weaker home sales and greater inventories. A combined 20% pullback in existing home sales and 20% increase in inventories, would add slightly over 1 month to months supply, bringing it up to 3.3 months. To get back to 5 months and the minimum threshold for a balanced market, it would take more severe moves in the range of 40% for both.
emphasis added

Earlier this month I wrote:

If sales decline to 5.0 million SAAR, inventory would have to increase to around 2.5 million units to reach 6 months-of-supply. This also might seem unlikely and would seem to argue for the slow house price growth scenario; however, I think there are reasons we might sales decline to around 5 million SAAR. We could see a wealth effect from the recent decline in the stock market and speculative assets. Also, my suspicion is household formation will slow (I think there was a sharp increase in household formation in 2021 that will slow later this year).

I'll have more on household formation later this week.

by Calculated Risk on 5/23/2022 11:07:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Final Look at Local Housing Markets in April

A brief excerpt:

And a table of April sales. Sales in these areas were down 9.5% YoY, Not Seasonally Adjusted (NSA). The NAR reported sales NSA in April (464,000) were 9.6% below sales in April 2021 (513,000).  So, this sample of local markets is similar to the NAR report.

The table doesn’t include California where sales were down 8.5% year-over-year.

Notes for all tables:

1) New additions to table in BOLD.

2) Northwest (Seattle), North Texas (Dallas) and Santa Clara (San Jose), Mid-Florida (Tampa, Orlando), Jacksonville, Source: Northeast Florida Association of REALTORS®

3) Totals do not include Denver, Atlanta on Minneapolis (included in state totals).

I expect we will see further increases in inventory - and further decline in sales - in May due to higher mortgage rates (more than the usual seasonal increase in inventory).

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 5/23/2022 09:19:00 AM

Altos reports inventory is up year-over-year!

Inventory usually declines in the winter, and then increases in the spring. Inventory bottomed seasonally at the beginning of March 2022 and is now up 43% since then.

Click on graph for larger image in graph gallery.

This inventory graph is courtesy of Altos Research.

As of May 20th, inventory was at 344 thousand (7-day average), compared to 318 thousand the prior week. Inventory was up 8.2% from the previous week.

Inventory is still very low. Compared to the same week in 2021, inventory is up 6.4% from 324 thousand, however compared to the same week in 2020, and inventory is down 52.5% from 724 thousand.  Compared to 3 years ago, inventory is down 63.3% from 938 thousand.

Here are the inventory milestones I’m watching for with the Altos data:

1. The seasonal bottom (happened on March 4th for Altos) ✅

2. Inventory up year-over-year (happened on May 13th for Altos) ✅

3. Inventory up compared to two years ago (currently down 52.5% according to Altos)

4. Inventory up compared to 2019 (currently down 63.3%).

Here is a graph of the inventory change year-over-year and vs two years ago (milestone 3 above).

The blue line is the year-over-year data, and the red line is compared to two years ago.

Inventory is now up year-over-year.  Two years ago (in 2020) inventory was declining all year, so the two-year comparison will get easier all year.

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 5/23/2022 08:49:00 AM

These indicators are mostly for travel and entertainment.    It is interesting to watch these sectors recover as the pandemic subsides.  Note: Apple has discontinued "Apple mobility", and restaurant traffic is mostly back to normal.

----- Airlines: Transportation Security Administration -----
The TSA is providing daily travel numbers.

This data is as of May 22nd.

Click on graph for larger image.

This data shows the 7-day average of daily total traveler throughput from the TSA for 2019 (Light Blue), 2020 (Black), 2021 (Blue) and 2022 (Red).

The dashed line is the percent of 2019 for the seven-day average.

The 7-day average is down 9.5% from the same day in 2019 90.5% of 2019).  (Dashed line) 

Air travel has been moving sideways over the last two months, off about 10% from 2019.

----- Movie Tickets: Box Office Mojo -----
This data shows domestic box office for each week and the median for the years 2016 through 2019 (dashed light blue).  

Black is 2020, Blue is 2021 and Red is 2022.  

The data is from BoxOfficeMojo through May 19th.

Note that the data is usually noisy week-to-week and depends on when blockbusters are released.  

Movie ticket sales were at $120 million last week, down about 40% from the median for the week.

----- Hotel Occupancy: STR -----
This graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

The red line is for 2022, black is 2020, blue is the median, and dashed light blue is for 2021. Dashed purple is 2019 (STR is comparing to a strong year for hotels).

This data is through May 14th. The occupancy rate was down 5.9% compared to the same week in 2019.

The 4-week average of the occupancy rate is at the median rate for the previous 20 years (Blue).

Notes: Y-axis doesn't start at zero to better show the seasonal change.

The 4-week average of the occupancy rate will now mostly move sideways seasonally until the summer.

----- New York City Subway Usage -----
Here is some interesting data on New York subway usage (HT BR).

This graph is from Todd W Schneider. 

This graph shows how much MTA traffic has recovered in each borough (Graph starts at first week in January 2020 and 100 = 2019 average).

Manhattan is at about 39% of normal.

This data is through Friday, May 20th.

He notes: "Data updates weekly from the MTA’s public turnstile data, usually on Saturday mornings".

by Calculated Risk on 5/22/2022 07:26:00 PM

Weekend:
• Schedule for Week of May 22, 2022

• Quarterly Starts by Purpose and Design: "Built for rent" Increasing

Monday:
• At 8:30 AM ET, Chicago Fed National Activity Index for April. This is a composite index of other data.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 are up 33 and DOW futures are up 200 (fair value).

Oil prices were down over the last week with WTI futures at $110.28 per barrel and Brent at $112.55 per barrel. A year ago, WTI was at $66 and Brent was at $69 - so WTI oil prices are up about 70% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $4.58 per gallon. A year ago prices were at $3.02 per gallon, so gasoline prices are up $1.56 per gallon year-over-year.

by Calculated Risk on 5/22/2022 11:48:00 AM

Along with the monthly housing starts for April last week, the Census Bureau released Housing Units Started by Purpose and Design through Q1 2022.

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Click on graph for larger image.

Single family starts built for sale (red) were down 2% in Q1 2022 compared to Q1 2021.

Owner built starts (orange) were up 28% year-over-year.

Condos built for sale increased and are still low.

The 'units built for rent' (blue) and were up 19% in Q1 2022 compared to Q1 2021.

The recent housing boom had been mostly in single family homes 'built for sale', but 'built for rent' has picked up.

by Calculated Risk on 5/21/2022 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• Lawler: The Sharp increase in Monthly Payments in Selected Metro Areas

• NAR: Existing-Home Sales Decreased to 5.61 million SAAR in April

• April Housing Starts: All-Time Record Housing Units Under Construction

• 3rd Look at Local Housing Markets

• A Slowdown in Showings

• Lawler: Mortgage/Treasury Spreads Part II: “Decomposing” the Widening This Year


This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

You can subscribe at https://calculatedrisk.substack.com/

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by Calculated Risk on 5/21/2022 08:11:00 AM

The key reports this week are the second estimate of Q1 GDP, April New Home Sales, and Personal Income and Outlays for April.

For manufacturing, the May Richmond and Kansas City Fed manufacturing surveys will be released.

Note: The Census Bureau is expected to release "National, State, and County housing units" from the 2020 Census sometime in May.

----- Monday, May 23rd -----
8:30 AM ET: Chicago Fed National Activity Index for April. This is a composite index of other data.

----- Tuesday, May 24th -----
10:00 AM: New Home Sales for April from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the sales rate for last month.

The consensus is for 750 thousand SAAR, down from 763 thousand SAAR in March.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for May.

----- Wednesday, May 25th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for April from the Census Bureau. The consensus is for a 0.6% increase in durable goods orders.

2:00 PM: FOMC Minutes, Minutes Meeting of May 3-4, 2022

----- Thursday, May 26th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand up from 218 thousand last week.

8:30 AM: Gross Domestic Product, 1st quarter 2021 (Second estimate). The consensus is that real GDP decreased 1.3% annualized in Q1, up from the advance estimate of -1.4%.

10:00 AM: Pending Home Sales Index for April. The consensus is for a 1.9% decrease in the index.

11:00 AM: the Kansas City Fed manufacturing survey for May. 

----- Friday, May 27th -----
8:30 AM ET: Personal Income and Outlays, April 2021. The consensus is for a 0.6% increase in personal income, and for a 0.7% increase in personal spending. And for the Core PCE price index to increase 0.3%.  PCE prices are expected to be up 6.3% YoY, and core PCE prices up 4.9% YoY.

10:00 AM: University of Michigan's Consumer sentiment index (Final for May). The consensus is for a reading of 59.1.

by Calculated Risk on 5/20/2022 01:21:00 PM

From BofA:

We have revised down our GDP forecast for 2022 and 2023 to 2.6% and 1.5% from 2.7% and 1.8% previously. [Q2 3.0% revised down from 3.5%] [May 20 estimate]
emphasis added

From Goldman:

we left our Q2 GDP tracking estimate unchanged at +2.6% (qoq ar) and our past-quarter GDP tracking estimate for Q1 unchanged at -1.5%. [May 19 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is 2.4 percent on May 18, down from 2.5 percent on May 17. [May 18 estimate]

by Calculated Risk on 5/20/2022 10:31:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: Lawler: The Sharp increase in Monthly Payments in Selected Metro Areas

Excerpt:

According to Mortgage News Daily, the interest rate on a 30-year fixed-rate mortgage for a prime borrower putting 20% down increased to 5.45% earlier this week from 3.14% a year ago.  Such an increase would result in a 31.6% jump in the monthly principal and interest (P&I) payment on a mortgage with a fixed dollar amount.  However, the increase in the monthly P&I payment for a typical home bought today compared to a year ago would be massively higher than 31.6%, as home prices nationally are up by over 20% from a year earlier, and by much more in many markets.  In addition, that means a 20% down payment has risen sharply as well.

Below is a table showing the year-over-year increase in a 20% down payment and the P&I payment for a 30-year FRM for the US and for several metro areas on a “typical” single-family home. ...

Click on table for larger image.
...
It is not the absolute mortgage rate, rather the change in monthly payments that is causing the slowdown in the housing market.

There is much more in the post.  You can subscribe at https://calculatedrisk.substack.com/ (Most content is available for free, so please subscribe).