by Calculated Risk on 9/21/2022 07:00:00 AM

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

Mortgage applications increased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 16, 2022. Last week’s results include an adjustment for the Labor Day holiday.

... The Refinance Index increased 10 percent from the previous week and was 83 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 30 percent lower than the same week one year ago.

“Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike. Mortgage rates followed suit last week, increasing across the board, with the 30-year fixed rate jumping 24 basis points to 6.25 percent – the highest since October 2008,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “As with the swings in rates and other uncertainties around the housing market and broader economy, mortgage applications increased for the first time in six weeks but remained well below last year’s levels, with purchase applications 30 percent lower and refinance activity down 83 percent. The weekly gain in applications, despite higher rates, underscores the overall volatility right now as well as Labor Day-adjusted results the prior week.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.25 percent from 6.01 percent, with points decreasing to 0.71 from 0.76 (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 this year.

The refinance index is just above the lowest level since the year 2000.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 30% year-over-year unadjusted.

The purchase index is only 10% above the pandemic low.

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

by Calculated Risk on 9/20/2022 09:00:00 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 August from the National Association of Realtors (NAR). The consensus is for 4.70 million SAAR, down from 4.81 million in July.

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to raise the Fed Funds rate by 75bp at this meeting.

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
New Cases per Day2	54,152	69,550	≤5,0001
Hospitalized2	25,644	28,773	≤3,0001
Deaths per Day2	355	374	≤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 9/20/2022 01:30:00 PM

Today, in the Calculated Risk Real Estate Newsletter: 3rd Look at Local Housing Markets in August

A brief excerpt:

The big story for August existing home sales is the sharp year-over-year (YoY) decline in sales. Another key story is that new listings are down YoY in August as the sellers’ strike continues. Of course, active listings are up sharply YoY, but inventory growth has stalled. The increase in inventory so far has been due to softer demand, likely because of higher mortgage rates.
...
Here is a table comparing the year-over-year Not Seasonally Adjusted (NSA) declines in sales this year from the National Association of Realtors® (NAR) with the local markets I track. So far, these measures have tracked closely, and the preliminary data below suggests a sharp decline in sales in August.

Note that in August 2022, there was one more selling day than in August 2021, so the SA decline in August sales will be larger than the NSA decline. The opposite was true in July (one more selling day in July 2021 than in July 2022). So, seasonally adjusted, this is probably close to the same YoY decline as in July.
...
More local markets to come!

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

by Calculated Risk on 9/20/2022 09:14:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: August Housing Starts: Record Number of Housing Units Under Construction

Excerpt:

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

Red is single family units. Currently there are 812 thousand single family units under construction (SA). This is below the previous four months, and 16 thousand below the peak in April and May. Single family units under construction 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 890 thousand multi-family units under construction.  This is the highest level since February 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are 1.702 million units under construction. This is the all-time record number of units under construction.

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 9/20/2022 08:37:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,575,000. This is 12.2 percent above the revised July estimate of 1,404,000, but is 0.1 percent below the August 2021 rate of 1,576,000. Single‐family housing starts in August were at a rate of 935,000; this is 3.4 percent above the revised July figure of 904,000. The August rate for units in buildings with five units or more was 621,000.

Building Permits:
Privately‐owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,517,000. This is 10.0 percent below the revised July rate of 1,685,000 and is 14.4 percent below the August 2021 rate of 1,772,000. Single‐family authorizations in August were at a rate of 899,000; this is 3.5 percent below the revised July figure of 932,000. Authorizations of units in buildings with five units or more were at a rate of 571,000 in August.
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 August compared to July.   Multi-family starts were up 33.1% year-over-year in August. 

Single-family starts (red) increased in August and were down 14.6% 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 August were above expectations, however, starts in June and July were revised down, combined.

I'll have more later …

by Calculated Risk on 9/19/2022 10:55:00 AM

From Bloomberg: Home-Flipper Opendoor Hit With Losses in Echo of Zillow Collapse excerpt:

The company, which sells thousands of homes in a typical month, lost money on 42% of its transactions in August, according to research from YipitData. Opendoor’s performance — as measured by the prices at which it bought and sold properties — was even worse in key markets such as Los Angeles, where the company lost money on 55% of sales, and Phoenix, where the share was 76%.

A representative for Opendoor declined to comment on the figures, which don’t include fees charged to customers or expenses incurred in renovating and marketing homes. Opendoor’s rocky summer is reminiscent of the pricing problems that doomed Zillow Group Inc.’s iBuying business last year, according to a research note from Mike DelPrete, a scholar-in-residence at the University of Colorado Boulder. That doesn’t mean Opendoor is going to shut down the business, but it demonstrates the depth of the losses — and September is likely to be even worse than August, DelPrete’s analysis shows. “Opendoor’s metrics are in the danger zone,” DelPrete said in an interview. “They are very close to where Zillow was in its worst moments.”

by Calculated Risk on 9/19/2022 10:11:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 46, down from 49 in August. Any number below 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Falls for Ninth Straight Month as Housing Slowdown Continues

In another sign that the slowdown in the housing market continues, builder sentiment fell for the ninth straight month in September as the combination of elevated interest rates, persistent building material supply chain disruptions and high home prices continue to take a toll on affordability.

Builder confidence in the market for newly built single-family homes fell three points in September to 46, the lowest level since May 2014 with the exception of the spring of 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.

“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga. “In another indicator of a weakening market, 24% of builders reported reducing home prices, up from 19% last month.”

“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6% last week, the highest level since 2008,” said NAHB Chief Economist Robert Dietz. “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions.” …

All three HMI components posted declines in September. Current sales conditions dropped three points to 54, sales expectations in the next six months declined one point to 46 and traffic of prospective buyers fell one point to 31.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell five points to 51, the Midwest dropped five points to 44, the South fell seven points to 56 and the West posted a 10-point decline to 41.
emphasis added

This was below the consensus forecast, and below 50. 

The "traffic of prospective buyers" is now well below breakeven at 31.

by Calculated Risk on 9/19/2022 07:30:00 AM

Note: this is a travel day, and posts will be brief.

As of September 16th, inventory was at 552 thousand (7-day average), compared to 547 thousand the prior week.  Inventory was up 0.9% from the previous week. Inventory is down slightly from the 2022 peak of 555 thousand three weeks ago.

Inventory is still historically low. Compared to the same week in 2021, inventory is up 26.5% from 436 thousand, however compared to the same week in 2020 inventory is down 3.7% from 573 thousand.  Compared to 3 years ago, inventory is down 42.7% from 964 thousand.

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

j 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 3.7% according to Altos)

4. Inventory up compared to 2019 (currently down 42.7%).

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 9/18/2022 08:34:00 PM

Weekend:
• Schedule for Week of September 18, 2022

Monday:
• At 10:00 AM ET, The September NAHB homebuilder survey. The consensus is for a reading of 47, down from 49 in August. Any number below 50 indicates that more builders view sales conditions as poor than good.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 are up 6 and DOW futures are up 63 (fair value).

Oil prices were down over the last week with WTI futures at $85.83 per barrel and Brent at $92.13 per barrel. A year ago, WTI was at $70, and Brent was at $73 - so WTI oil prices are up 23% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.64 per gallon. A year ago, prices were at $3.17 per gallon, so gasoline prices are up $0.47 per gallon year-over-year.

by Calculated Risk on 9/18/2022 09:37:00 AM

Expectations are the FOMC will announce a 75bp rate increase in the federal funds rate at the meeting this week, although some analysts think a 100bp rate increase is possible.

From Merrill Lynch:

"We think the Fed will read the incoming data as justifying another large 75bp rate hike, bringing the target range for the federal funds rate to 3.0-3.25%. We think the Fed will signal a terminal funds rate of 4.0-4.25% early next year, 37.5bp higher than in June. We expect the FOMC statement to say that monetary policy will be moving into restrictive territory and the committee expects it to remain there “for some time”, similar to the tone of Chair Powell’s remarks at Jackson Hole. In the press conference, Powell is likely to emphasize that the “overarching goal” of monetary policy is the restoration of price stability, even if doing so requires a hard landing. Updated projections are likely to send a similar message, with less growth, higher unemployment, and a more restrictive policy stance suggesting the window to a soft landing has narrowed further."

From Goldman Sachs:

"We have raised our fed funds rate forecast by 75bp over the last two weeks, and now expect that the FOMC will hike by 75bp in September, 50bp in November, and 50bp in December to reach our terminal rate forecast of 4-4.25% by the end of 2022."

Analysts will be looking for comments on the size of future rate hikes.

Projections will be released at this meeting. For review, here are the June projections. 

In June, most participants expected thirteen 25bp rate hikes in 2022. The FOMC raised rates 25 bp in March, 50 bp in May, 75 bp in June and 75 bp in July.  It now appears there will be sixteen 25bp rate hikes this year.

Wall Street forecasts have been revised down further since June due to the ongoing negative impacts from the pandemic. the war in Ukraine and financial tightening, and the FOMC will likely revise down their GDP projections.   For example, from Goldman Sachs:

"We still forecast GDP growth of +1.1%/+1.0% in 2022Q3/Q4 and 0% GDP growth in 2022 on a Q4/Q4 basis, but now expect GDP growth of ... +1.1% in 2023 on a Q4/Q4 basis"

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2022	2023	2024
June 2022	1.5 to 1.9	1.3 to 2.0	1.5 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.7% in August. So far, the economic slowdown has barely pushed up the unemployment rate.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2022	2023	2024
June 2022	3.6 to 3.8	3.8 to 4.1	3.9 to 4.1

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July 2022, PCE inflation was up 6.3% from July 2021. This was below the cycle high of 6.8% YoY in May. Analysts are expecting inflation to decline slowly, but the Q4 2022 year-over-year change will likely be revised up.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2022	2023	2024
June 2022	5.0 to 5.3	2.4 to 3.0	2.0 to 2.5

PCE core inflation was up 4.6% in July year-over-year. This was below the cycle high of 5.3% YoY in February.  

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2022	2023	2024
June 2022	4.2 to 4.5	2.5 to 3.2	2.1 to 2.5