by Calculated Risk on 7/20/2022 01:33:00 PM

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

From the AIA: Architecture Billings Index continues to stabilize but remains healthy

Architecture firms reported increasing demand for design services in June, according to a new report today from The American Institute of Architects (AIA).

The ABI score for June was 53.2. While this score is down slightly from May’s score of 53.5, it still indicates moderately strong business conditions overall (any score above 50 indicates an increase in billings from the prior month). Also in June, both the new project inquiries and design contracts indexes moderated from May but continued to show growth, posting scores of 58.2 and 52.2 respectively.

“Ongoing project activity at architecture firms as well as new work coming online remains strong, pushing project backlogs up to seven months on average nationally,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “In spite of heavy workloads, employment at architecture firms has stabilized, suggesting that adding new employees is becoming even more challenging as the building construction sector continues to recover.”
...
• Regional averages: West (57.8); Midwest (54.8); South (51.5); Northeast (48.7)

• Sector index breakdown: institutional (53.5); mixed practice (52.8); multi-family residential (52.6); commercial/industrial (52.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.2 in June, down from 53.5 in May. 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.

This index has been positive for 17 consecutive months.   This index usually leads CRE investment by 9 to 12 months, so this index suggests a pickup in CRE investment in 2022 and into 2023.

by Calculated Risk on 7/20/2022 10:54:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Decreased to 5.12 million SAAR in June

Excerpt:

Sales in June (5.12 million SAAR) were down 5.4% from the previous month and were 14.2% below the June 2021 sales rate. Sales are now below pre-pandemic levels.
...
The second graph shows existing home sales by month for 2021 and 2022.

Sales declined 14.2% year-over-year compared to June 2021. This was the tenth consecutive month with sales down year-over-year.
...
Key point on Timing of Sales

Existing home sales are reported when the transaction closes. Sales in June were mostly for contracts signed in April and May. Recent data shows a significant slowdown in activity starting in May and decelerating further in June.

My sense is contracts for sales really declined in June, and that will show up as closed sales in July and August - so we should expect a further decline in existing home sales over the next few months.

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

by Calculated Risk on 7/20/2022 10:13:00 AM

From the NAR: Existing-Home Sales Slid 5.4% in June

Existing-home sales dropped for the fifth straight month in June, according to the National Association of REALTORS®. Three out of four major U.S. regions experienced month-over-month sales declines and one region held steady. Year-over-year sales sank in all four regions.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dipped 5.4% from May to a seasonally adjusted annual rate of 5.12 million in June. Year-over-year, sales fell 14.2% (5.97 million in June 2021).
...
Total housing inventory registered at the end of June was 1,260,000 units, an increase of 9.6% from May and a 2.4% rise from the previous year (1.23 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, up from 2.6 months in May and 2.5 months in June 2021.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June (5.12 million SAAR) were down 5.4% from the previous month and were 14.2% below the June 2021 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.26 million in June from 1.15 million in May.

Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was up 2.4% year-over-year (blue) in June compared to June 2021.

Months of supply (red) increased to 3.0 months in June from 2.6 months in May.

This was well below the consensus forecast. I'll have more later.

by Calculated Risk on 7/20/2022 07:00:00 AM

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

Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 15, 2022.

... The Refinance Index decreased 4 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 16 percent compared with the previous week and was 19 percent lower than the same week one year ago.

“Mortgage applications declined for the third week in a row, reaching the lowest level since 2000. Similarly, with most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet, with MBA’s refinance index also falling to a 22-year low,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand. The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.82 percent from 5.74 percent, with points increasing to 0.65 from 0.59 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index has declined sharply over the last several months.

The refinance index is at the lowest level since the year 2000.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 19% year-over-year unadjusted.

The purchase index is now only 14% above the pandemic low.

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

by Calculated Risk on 7/19/2022 11:33:00 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, Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for 5.40 million SAAR, down from 5.41 million last month. Housing economist Tom Lawler expects the NAR to report sales of 5.12 million SAAR for June.

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

On COVID (focus on hospitalizations and deaths):

Hospitalizations have almost quadrupled from the lows in April 2022.

COVID Metrics
	Now	Week Ago	Goal
New Cases per Day2🚩	123,639	121,347	≤5,0001
Hospitalized2🚩	34,061	31,685	≤3,0001
Deaths per Day2🚩	352	343	≤501
1my goals to stop daily posts, 27-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

Average daily deaths bottomed in July 2021 at 214 per day.

by Calculated Risk on 7/19/2022 02:56:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Slowdown in Showings Suggests Further Declines in Existing Home Sales in Coming Months

A brief excerpt:

The following data is courtesy of David Arbit, Director of Research at the Minneapolis Area REALTORS® and NorthstarMLS (posted with permission). Here is a link to their data.

This graph shows the 7-day average showings for the Twin Cities area for 2019, 2020, 2021, and 2022. The 7-day average showings (red) are currently off 23% from 2019.

Click on graph for larger image.

This slowdown in showings started in May and accelerated in June. The existing home sales for June will be released tomorrow, and that is for closings in June. Closings in June were mostly for contracts signed in April and May. This slowdown in showings suggests further declines in closed sales over the next few months.

There was a huge dip in showings in 2020 (black) at the start of the pandemic, and then showing were well above 2019 (blue) levels for the rest of the year. And showings in 2021 (gold) were very strong in the first half of the year, and then were closer to 2019 in the 2nd half.

Note that there were dips in showings during holidays (July 4th, Memorial Day, Thanksgiving and Christmas), and also dips related to protests and curfews related to the deaths of George Floyd and Daunte Wright.

2022 (red) started off solid but is now well below the previous three years.

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

by Calculated Risk on 7/19/2022 09:17:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: June Housing Starts: All-Time Record Housing Units Under Construction

Excerpt:

The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 824 thousand single family units under construction (SA). This is just below the previous two months, and otherwise is the highest level since November 2006. Single family units under construction might have peaked since single family starts are now declining. The reason there are so many homes under construction is probably due to supply constraints.

Blue is for 2+ units. Currently there are 856 thousand multi-family units under construction.  This is the highest level since March 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are a record 1.680 million units under construction. This is above the previous record of 1.628 million units that were under construction in 1973 (mostly apartments in 1973 for the baby boom generation).

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

by Calculated Risk on 7/19/2022 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 1,559,000. This is 2.0 percent below the revised May estimate of 1,591,000 and is 6.3 percent below the June 2021 rate of 1,664,000. Single‐family housing starts in June were at a rate of 982,000; this is 8.1 percent below the revised May figure of 1,068,000. The June rate for units in buildings with five units or more was 568,000.

Building Permits:
Privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,685,000. This is 0.6 percent below the revised May rate of 1,695,000, but is 1.4 percent above the June 2021 rate of 1,661,000. Single‐family authorizations in June were at a rate of 967,000; this is 8.0 percent below the revised May figure of 1,051,000. Authorizations of units in buildings with five units or more were at a rate of 666,000 in June.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (blue, 2+ units) increased in June compared to May.   Multi-family starts were up 15.6% year-over-year in June. 

Single-family starts (red) decreased in June and were down 15.7% year-over-year.

The second graph shows single and multi-family housing starts since 1968.

This shows the huge collapse following the housing bubble, and then the eventual recovery.

Total housing starts in June were slightly above expectations, and starts in April and May, were revised up, combined.

I'll have more later …

by Calculated Risk on 7/18/2022 09:18:00 PM

Tuesday:
• At 8:30 AM ET, Housing Starts for June. The consensus is for 1.586 million SAAR, up from 1.549 million SAAR in May.

On COVID (focus on hospitalizations and deaths):

Hospitalizations have almost quadrupled from the lows in April 2022.

COVID Metrics
	Now	Week Ago	Goal
New Cases per Day2🚩	122,639	110,404	≤5,0001
Hospitalized2🚩	31,463	31,169	≤3,0001
Deaths per Day2🚩	336	320	≤501
1my goals to stop daily posts, 27-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

Average daily deaths bottomed in July 2021 at 214 per day.

by Calculated Risk on 7/18/2022 04:00:00 PM

Note: This is as of June 30th.

From the MBA: Share of Mortgage Loans in Forbearance Decreases Slightly to 0.81% in June

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey revealed that the total number of loans now in forbearance decreased by 4 basis points from 0.85% of servicers’ portfolio volume in the prior month to 0.81% as of June 30, 2022. According to MBA’s estimate, 405,000 homeowners are in forbearance plans.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 3 basis points to 0.35%. Ginnie Mae loans in forbearance increased 1 basis point to 1.26%, and the forbearance share for portfolio loans and private-label securities (PLS) declined 18 basis points to 1.68%.

“The overall forbearance rate in June stayed relatively flat with just a 4-basis-point decline from May,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “Borrowers continue to exit forbearance, but at a much slower pace than six or nine months ago. New forbearance requests are still trickling in, as permitted under the CARES Act, resulting in very little movement in the overall percentage of loans in forbearance.”

Added Walsh, “There are some early indicators of borrower stress resulting from high inflation and rising interest rates, among other factors. For example, overall servicing portfolio performance dropped by 14 basis points to 95.71% current in June, and the performance of post-forbearance workouts declined by 140 basis points to 81.34%. It is worth monitoring post-forbearance workouts for all borrowers, and particularly for borrowers with government loans, who are typically the most vulnerable to economic slowdowns.”
emphasis added

Click on graph for larger image.

This graph shows the percent of portfolio in forbearance by investor type over time.

The share of forbearance plans is decreasing, and, at the end of June, there were about 405,000 homeowners in forbearance plans.