by Calculated Risk on 1/13/2023 09:57:00 AM

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

A brief excerpt:

This is the third look at local markets in December. I’m tracking about 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I’ll update these tables throughout the month as additional data is released.

Closed sales in December were mostly for contracts signed in October and November. Since 30-year fixed mortgage rates were over 7% for most of October (no points) and averaged 6.8% in November (Freddie PMMS with points) closed sales were probably impacted significantly in December.

From the Houston Association of REALTORS®: The Economic Headwinds of 2022 Bring Houston’s Home Sales Hot Streak to an End

For the month of December, single-family home sales dropped 32.6 percent. That marks the ninth straight monthly decline of 2022 and the steepest. … The median price of a single-family home – the figure at which half of the homes sold for more and half sold for less – was $330,000 in December. That is the third straight month it has held at that level and is 3.8 percent higher than last December.
emphasis added

Here is a summary of active listings for these housing markets in December.

Inventory in these markets were down 30% YoY in January 2022 and are now up 76% YoY! So, this is a significant change from early in 2022, and about the same YoY inventory increase as in November (up 72% YoY).

Notes for all tables:
1) New additions to table in BOLD.
2) Northwest (Seattle), Santa Clara (San Jose), Jacksonville, Source: Northeast Florida Association of REALTORS®
3) Totals do not include Atlanta, or Denver (included in state totals)
...
Many more local markets to come!

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

by Calculated Risk on 1/12/2023 02:55:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

2) Employment: The economy added 4.5 million jobs in 2022.   This makes 2022 the second-best year for job growth in US history, only behind the 6.7 million jobs added in 2021.  How much will job growth slow in 2023?  Or will the economy lose jobs?

The FOMC doesn't project job growth, but they do project the unemployment rate. Currently the FOMC is forecasting the unemployment rate will increase to the 4.4% to 4.7% range in Q4 2023.  Depending on their outlook for population growth and the participation rate, it appears the FOMC is essentially forecasting between 1 million and 1 1/2 million job losses in 2023.  That is a significant employment recession.

Here is a look at the job changes during previous recessions.

Job Changes During Recessions
Year	Job Change	Recession
1974	-379	'73-'75
1975	365	'73-'75
1980	271	'80
1981	-48	'81-'82
1982	-2,124	'81-'82
1990	330	'90-'91
1991	-838	'90-91
2001	-1,727	'01
2002	-510	'01
2008	-3,553	'07-'09
2009	-5,051	'07-'09
2020	-9,292	'20

The 2020 recession was due to the pandemic.  The '07 to '09 recession was due to the financial crisis following the housing bubble, and the '01 recession was related to the bursting of the stock bubble.   Excluding the pandemic and bursting bubbles, only the '81-'82 recession had comparable job losses to the FOMC forecast, and that was a very deep recession.

Job losses in construction haven't started yet because a record number of housing units are under construction.   But those losses are already coming. 

My sense is the FOMC is overly pessimistic, and my guess is there will be something like 400 to 800 thousand jobs added in 2023.  It will depend on inflation and FOMC policy.    If the Fed drives the economy into recession (to cool inflation), then we could see job losses in 2023. 

Here are the Ten Economic Questions for 2023 and a few predictions:

• Question #1 for 2023: How much will the economy grow in 2023? Will there be a recession in 2023?
• Question #2 for 2023: How much will job growth slow in 2023? Or will the economy lose jobs?
• Question #3 for 2023: What will the unemployment rate be in December 2023?
• Question #4 for 2023: What will the participation rate be in December 2023?
• Question #5 for 2023: What will the YoY core inflation rate be in December 2023?
• Question #6 for 2023: What will the Fed Funds rate be in December 2023?
• Question #7 for 2023: How much will wages increase in 2023?
• Question #8 for 2023: How much will Residential investment change in 2023? How about housing starts and new home sales in 2023?
• Question #9 for 2023: What will happen with house prices in 2023?
• Question #10 for 2023: Will inventory increase further in 2023?

by Calculated Risk on 1/12/2023 11:58:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.4% in December. The 16% trimmed-mean Consumer Price Index increased 0.4% in December. "The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report".

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. 

On a year-over-year basis, the median CPI rose 6.9%, the trimmed-mean CPI rose 6.5%, and the CPI less food and energy rose 5.7%. Core PCE is for November and increased 4.7% year-over-year.

Note: The Cleveland Fed released the median CPI details. "Fuel oil and other fuels" decreased at a 78% annualized rate in December, and "Used Cars" decreased at a 27% annualized rate.

Note that Owners' Equivalent Rent and Rent of Primary Residence account for almost 1/3 of median CPI, and these measures were up an average of close to 10% annualized. This data is lagged, and rents have been declining in recent months.   To reflect this, I've added core CPI ex-shelter, and that has declined to 4.4% YoY.

by Calculated Risk on 1/12/2023 10:19:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Current State of the Housing Market; Overview for mid-January

A brief excerpt:

And here is a graph comparing the YoY change in the NAR median prices vs the Case-Shiller National Index (the median is distorted by the mix of homes sold, and also lagged since this is for closing prices).

The YoY change in the median price peaked at 25.2% in May 2021 and has now slowed to 3.5%. In general, the NAR median price leads the Case-Shiller index by 2 to 3 months. Note that the median price usually starts falling seasonally in July, so the 2.1% decline in November in the median price was partially seasonal, however the 10.4% decline over the last five months has been much larger than the usual seasonal decline.

It is likely the median price will be down year-over-year in a few months - and Case-Shiller will follow. I’m now forecasting a 10%+ decline in nominal house prices, see: House Prices: 7 Years in Purgatory.
...
On Friday, January 20th, the NAR will release existing home sales for December. This report will likely show another sharp year-over-year decline in sales for December, similar to the YoY decline in November. ... If national sales decline by the same percent as last month, the NAR will report sales for December under 4.0 million SAAR - below the 4.01 million in May 2020 (pandemic low) and the lowest sales rate since 2010.

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

by Calculated Risk on 1/12/2023 08:37:00 AM

The DOL reported:

In the week ending January 7, the advance figure for seasonally adjusted initial claims was 205,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 204,000 to 206,000. The 4-week moving average was 212,500, a decrease of 1,750 from the previous week's revised average. The previous week's average was revised up by 500 from 213,750 to 214,250.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 212,500.

The previous week was revised up.

Weekly claims were below the consensus forecast.

by Calculated Risk on 1/12/2023 08:32:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in December on a seasonally adjusted basis, after increasing 0.1 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.5 percent before seasonal adjustment.

The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. The food index increased 0.3 percent over the month with the food at home index rising 0.2 percent. The energy index decreased 4.5 percent over the month as the gasoline index declined; other major energy component indexes increased over the month.

The index for all items less food and energy rose 0.3 percent in December, after rising 0.2 percent in November. Indexes which increased in December include the shelter, household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes. The indexes for used cars and trucks, and airline fares were among those that decreased over the month.

The all items index increased 6.5 percent for the 12 months ending December; this was the smallest 12-month increase since the period ending October 2021. The all items less food and energy index rose 5.7 percent over the last 12 months. The energy index increased 7.3 percent for the 12 months ending December, and the food index increased 10.4 percent over the last year; all of these increases were smaller than for the 12-month period ending November.
emphasis added

CPI was below expectations and core CPI was at expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 1/11/2023 08:39:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 204 thousand last week.

• Also, at 8:30 AM, The Consumer Price Index for December from the BLS. The consensus is for 0.1% increase in CPI, and a 0.3% increase in core CPI.  The consensus is for CPI to be up 6.5% year-over-year and core CPI to be up 5.7% YoY.

by Calculated Risk on 1/11/2023 02:41:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Lawler: Freddie Mac “National” Home Price Index Down Again in November; Rents Continued to Slide

A brief excerpt:

Freddie Mac recently reported that its “National” Home Price Index (FMNHPI) declined for the fifth straight month on a seasonally adjusted basis in November, putting the FNNHPI down 2.06% from its June 2022 peak.  Compared to a year earlier the November FMNHPI was up 6.27%, down from October’s 7.92% YOY gain.  The November seasonally adjusted FMHPIs for 29 states plus DC were below their 2022 peaks, with five states showing declines of over 5% from their 2022 peak levels.

CR Note: This is a repeat sales index using only loans purchased by Fannie and Freddie. Freddie has data for all states and many cities. Idaho is down 8.16% seasonally adjusted compared to the peak in 2022. Arizona is down 7.06%, and California is down 5.88%.

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

by Calculated Risk on 1/11/2023 12:10:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

3) Unemployment Rate: The unemployment rate was at 3.5% in December, down 0.4 percentage points year-over-year.   Currently the FOMC is forecasting the unemployment rate will increase to the 4.4% to 4.7% range in Q4 2023.  What will the unemployment rate be in December 2023?

Five years ago - back when most analysts said the unemployment rate couldn't go much lower - I noted that current demographics shared some similarities to the '60s, and that the unemployment rate bottomed at 3.4% in the '60s - and that we might see the unemployment rate that low or lower in this cycle. That happened, and from a demographics perspective, an unemployment rate below 4% would probably not be inflationary.

Here is a graph of the unemployment rate over time:

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate decreased gradually in 2022. The unemployment rate decreased in December to 3.5%, down from 3.9% in December 2021. This tied the lowest unemployment rate since 1969.  

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

Here is a table of the participation rate and unemployment rate since 2008.

Unemployment and Participation Rate for December each Year
December of	Participation Rate	Change in Participation Rate (percentage points)	Unemployment Rate
2008	65.8%		7.3%
2009	64.6%	-1.2	9.9%
2010	64.3%	-0.3	9.3%
2011	64.0%	-0.3	8.5%
2012	63.7%	-0.3	7.9%
2013	62.9%	-0.8	6.7%
2014	62.8%	-0.1	5.6%
2015	62.7%	-0.1	5.0%
2016	62.7%	0.0	4.7%
2017	62.7%	0.0	4.1%
2018	63.0%	0.3	3.9%
2019	63.3%	0.3	3.6%
2020	61.5%	-1.8	6.7%
2021	62.0%	0.5	3.9%
2022	62.3%	0.3	3.5%

Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will increase to around 4% in December 2023 from the current 3.5%.  (Lower than the FOMC forecast of 4.4% to 4.7%).

Here are the Ten Economic Questions for 2023 and a few predictions:

• Question #1 for 2023: How much will the economy grow in 2023? Will there be a recession in 2023?
• Question #2 for 2023: How much will job growth slow in 2023? Or will the economy lose jobs?
• Question #3 for 2023: What will the unemployment rate be in December 2023?
• Question #4 for 2023: What will the participation rate be in December 2023?
• Question #5 for 2023: What will the YoY core inflation rate be in December 2023?
• Question #6 for 2023: What will the Fed Funds rate be in December 2023?
• Question #7 for 2023: How much will wages increase in 2023?
• Question #8 for 2023: How much will Residential investment change in 2023? How about housing starts and new home sales in 2023?
• Question #9 for 2023: What will happen with house prices in 2023?
• Question #10 for 2023: Will inventory increase further in 2023?

by Calculated Risk on 1/11/2023 09:21:00 AM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

4) Participation Rate: In December 2022, the overall participation rate was at 62.3%, up year-over-year from 62.0% in December 2021, but still below the pre-pandemic level of 63.4%.   Long term, the BLS is projecting the overall participation rate will decline to 60.1% by 2031 due to demographics.  What will the participation rate be in December 2023?

The overall labor force participation rate is the percentage of the working age population (16 + years old) in the labor force.   A large portion of the decline in the participation rate since 2000 was due to demographics and long-term trends.

The Labor Force Participation Rate in December 2022 was at 62.3% (red), down from the pre-pandemic level of 63.4% in February 2020, and up from the pandemic low of 60.1% in April 2020. (Blue is the employment population ratio).

In April 2020, 8.15 million people had left the labor force due to the pandemic.   By December 2022, the labor force was about 0.5 million higher than the pre-pandemic high.  

We know population growth has been weak over the last several years, and that the baby boom generation is now retiring in large numbers.  And there are ongoing impacts of the pandemic on the labor force (over 1.1 million US deaths, some people unable to work due to long COVID, and immune compromised or elderly people avoiding other people and not working).

The second graph shows the participation rate for "prime age" workers (25 to 54 years old). The 25 to 54 participation rate was at 82.4% in December 2022 (Red), down from the pre-pandemic level of 83.0%.  This suggests we might see some further increase in the prime participation rate, however most of the prime age workers have returned to the labor force.

There are probably a few more people that will return to the workforce in 2023, pushing up the participation rate.  However, demographics will be pushing the rate down.  So, my guess is the participation rate will be mostly unchanged year-over-year, around 62.3%.

Here are the Ten Economic Questions for 2023 and a few predictions:

• Question #1 for 2023: How much will the economy grow in 2023? Will there be a recession in 2023?
• Question #2 for 2023: How much will job growth slow in 2023? Or will the economy lose jobs?
• Question #3 for 2023: What will the unemployment rate be in December 2023?
• Question #4 for 2023: What will the participation rate be in December 2023?
• Question #5 for 2023: What will the YoY core inflation rate be in December 2023?
• Question #6 for 2023: What will the Fed Funds rate be in December 2023?
• Question #7 for 2023: How much will wages increase in 2023?
• Question #8 for 2023: How much will Residential investment change in 2023? How about housing starts and new home sales in 2023?
• Question #9 for 2023: What will happen with house prices in 2023?
• Question #10 for 2023: Will inventory increase further in 2023?