by Calculated Risk on 2/02/2023 09:45:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 3.8% Below Peak; Price-to-rent index is 6.1% below recent peak

Excerpt:

It has been 17 years since the bubble peak. In the November Case-Shiller house price index released on Tuesday, the seasonally adjusted National Index (SA), was reported as being 61% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 12% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is about 2% above the bubble peak.

Both indexes have declined for six consecutive months in real terms (inflation adjusted).

People usually graph nominal house prices, but it is also important to look at prices in real terms.  As an example, if a house price was $200,000 in January 2000, the price would be almost $339,000 today adjusted for inflation (69.5% increase).  That is why the second graph below is important - this shows "real" prices. ...

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.

Note that OER is lagging behind other measures of rent.

Here 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 more sideways but picked up significantly following the onset of the pandemic.

On a price-to-rent basis, the Case-Shiller National and Composite 20 indexes declined again in November for the sixth consecutive month. The price-to-rent index for the National index is off 6.1% from the recent peak, and the Composite 20 based index is off 7.7%.

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

by Calculated Risk on 2/02/2023 08:33:00 AM

The DOL reported:

In the week ending January 28, the advance figure for seasonally adjusted initial claims was 183,000, a decrease of 3,000 from the previous week's unrevised level of 186,000. The 4-week moving average was 191,750, a decrease of 5,750 from the previous week's unrevised average of 197,500.
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 191,750.

The previous week was unrevised.

Weekly claims were below the consensus forecast.

by Calculated Risk on 2/01/2023 09:41:00 PM

Wards Auto released their estimate of light vehicle sales for January: U.S. Light-Vehicle Sales Record Fifth Consecutive Increase in January (pay site).

Wards Auto estimates sales of 15.74 million SAAR in January 2023 (Seasonally Adjusted Annual Rate), up 17.6% from the December sales rate, and up 4.2% from January 2022. 

Click on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for January (red).

The impact of COVID-19 was significant, and April 2020 was the worst month.  After April 2020, sales increased, and were close to sales in 2019 (the year before the pandemic).  However, sales decreased late last year due to supply issues.  It appears the "supply chain bottom" was in September 2021.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Sales in January were well above the consensus forecast.

by Calculated Risk on 2/01/2023 04:00:00 PM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings increased to 11.0 million on the last business day of December, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 6.2 million and 5.9 million, respectively. Within separations, quits (4.1 million) and layoffs and discharges (1.5 million) changed little.
emphasis added

The following graph shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December the employment report this Friday will be for January.

Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are usually pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

The spike in layoffs and discharges in March 2020 is labeled, but off the chart to better show the usual data.

Jobs openings increased in December to 11.012 million from 10.440 million in November.

The number of job openings (black) were down 4% year-over-year. 

Quits were down 7% year-over-year. These are voluntary separations. (See light blue columns at bottom of graph for trend for "quits").

by Calculated Risk on 2/01/2023 02:01:00 PM

Fed Chair Powell press conference video here or on YouTube here, starting at 2:30 PM ET.

FOMC Statement:

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.

Russia's war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
emphasis added

by Calculated Risk on 2/01/2023 11:39:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Rents Continue to Decline; "Apartment Market Loosens"

A brief excerpt:

The rental market has changed rapidly. This index from the National Multifamily Housing Council (NMHC) has been an excellent leading indicator for rents and vacancy rates, and this suggests higher vacancy rates and falling asking rents in the coming months.

From the NMHC: Rents Continue to Fall as Apartment Market Loosens, Transactions Pull Back Due to Higher Interest Rates

• The Market Tightness Index came in at 14 this quarter—well below the breakeven level (50)—indicating looser market conditions for the second consecutive quarter. Over three-quarters of respondents (78%) reported markets to be looser than three months ago, while only 5% thought markets have become tighter. Another 16% of respondents thought that market conditions were unchanged over the past three months.

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

by Calculated Risk on 2/01/2023 10:22:00 AM

From the Census Bureau reported that overall construction spending decreased:

Construction spending during December 2022 was estimated at a seasonally adjusted annual rate of $1,809.8 billion, 0.4 percent below the revised November estimate of $1,817.3 billion. The December figure is 7.7 percent above the December 2021 estimate of $1,681.0 billion.

The value of construction in 2022 was $1,792.9 billion, 10.2 percent above the $1,626.4 billion spent in 2021.
emphasis added

Both private and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $1,427.1 billion, 0.4 percent below the revised November estimate of $1,432.9 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $382.7 billion, 0.4 percent below the revised November estimate of $384.4 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Residential (red) spending is 9.3% below the recent peak.

Non-residential (blue) spending is slightly below the peak last month.

Public construction spending is close to the recent peak.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 1.7%. Non-residential spending is up 15.0% year-over-year. Public spending is up 11.7% year-over-year.

This was below consensus expectations of a 0.1% decrease in spending, however construction spending for the previous two months combined were revised up.

by Calculated Risk on 2/01/2023 10:05:00 AM

(Posted with permission). The ISM manufacturing index indicated contraction. The PMI® was at 47.4% in January, down from 48.4% in December. The employment index was at 50.6%, down from 50.8% last month, and the new orders index was at 42.5%, down from 45.1%.

From ISM: Manufacturing PMI® at 47.4% January 2023 Manufacturing ISM® Report On Business®

conomic activity in the manufacturing sector contracted in January for the third consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The January Manufacturing PMI® registered 47.4 percent, 1 percentage point lower than the seasonally adjusted 48.4 percent recorded in December. Regarding the overall economy, this figure indicates a second month of contraction after a 30-month period of expansion. The Manufacturing PMI® figure is the lowest since May 2020, when it registered a seasonally adjusted 43.5 percent. The New Orders Index remained in contraction territory at 42.5 percent, 2.6 percentage points lower than the seasonally adjusted figure of 45.1 percent recorded in December. The Production Index reading of 48 percent is a 0.6-percentage point decrease compared to December’s seasonally adjusted figure of 48.6 percent. The Prices Index registered 44.5 percent, up 5.1 percentage points compared to the December figure of 39.4 percent. The Backlog of Orders Index registered 43.4 percent, 2 percentage points higher than the December reading of 41.4 percent. The Employment Index continued in expansion territory (50.6 percent, down 0.2 percentage point from December’s seasonally adjusted 50.8 percent) after emerging from contraction territory (48.9 percent, seasonally adjusted) in November. The Supplier Deliveries Index figure of 45.6 percent is 0.5 percentage point higher than the 45.1 percent recorded in December; the last two readings are the index’s lowest since March 2009 (43.2 percent). The Inventories Index registered 50.2 percent, 2.1 percentage points lower than the seasonally adjusted December reading of 52.3 percent. The New Export Orders Index reading of 49.4 percent is 3.2 percentage points higher than December’s figure of 46.2 percent. The Imports Index continued in contraction territory at 47.8 percent, 2.7 percentage points above the December reading of 45.1 percent.”
emphasis added

This suggests manufacturing contracted in January.  This was below the consensus forecast.  Note that prices are falling.

by Calculated Risk on 2/01/2023 08:25:00 AM

From ADP: ADP National Employment Report: Private Sector Employment Increased by 106,000 Jobs in January; Annual Pay was Up 7.3%

Private sector employment increased by 106,000 jobs in January and annual pay was up 7.3 percent year-over-year, according to the January ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”).
...
"In January, we saw the impact of weather-related disruptions on employment during our reference week,” said Nela Richardson, chief economist, ADP. “Hiring was stronger during other weeks of the month, in line with the strength we saw late last year.”
emphasis added

This was well below the consensus forecast of 170,000, however, ADP blamed it on the weather. The BLS report will be released Friday, and the consensus is for 185 thousand non-farm payroll jobs added in January.

by Calculated Risk on 2/01/2023 07:00:00 AM

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

Mortgage applications decreased 9.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2023.

... The Refinance Index decreased 7 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 41 percent lower than the same week one year ago.

“Mortgage rates declined for the fourth straight week and have now fallen almost 40 basis points over the past month. Treasury yields were higher on average last week, while mortgage rates decreased, which was a sign of a narrowing spread between the two,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022. Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months. Overall application activity declined last week despite lower rates, which is an indication of the still volatile time of the year for housing activity. Purchase activity is expected to pick up as the spring homebuying season gets underway, bolstered by lower rates and moderating home-price growth. Both trends will help some buyers regain purchasing power.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.19 percent from 6.20 percent, with points decreasing to 0.65 from 0.69 (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 declined sharply in 2022.

A month ago, the refinance index was at the lowest level since the year 2000, but it has rebounded a slightly as rates declined.

The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is down 41% year-over-year unadjusted.  This is near housing bust levels.

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