by Calculated Risk on 2/22/2023 03:20:00 PM

From the Fed: Minutes of the Federal Open Market Committee, January 31–February 1, 2023. Excerpt:

In their consideration of appropriate monetary policy actions at this meeting, participants concurred that the Committee had made significant progress over the past year in moving toward a sufficiently restrictive stance of monetary policy. Even so, participants agreed that, while there were recent signs that the cumulative effect of the Committee's tightening of the stance of monetary policy had begun to moderate inflationary pressures, inflation remained well above the Committee's longer-run goal of 2 percent and the labor market remained very tight, contributing to continuing upward pressures on wages and prices. Against this backdrop, and in consideration of the lags with which monetary policy affects economic activity and inflation, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points at this meeting. Many of these participants observed that a further slowing in the pace of rate increases would better allow them to assess the economy's progress toward the Committee's goals of maximum employment and price stability as they determine the extent of future policy tightening that will be required to attain a stance that is sufficiently restrictive to achieve these goals. A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet.

In discussing the policy outlook, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, all participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. Participants affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. In determining the extent of future increases in the target range, participants judged that it would be appropriate to 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. Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time.
emphasis added

by Calculated Risk on 2/22/2023 12:00:00 PM

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

From the AIA: Architectural billings continue to contract in 2023

Fewer architecture firms report declining billings in January compared to billing activity in December, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for January was 49.3* compared to 48.4 in December (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from December to January, however, the pace of decline slowed. Inquiries into new projects during January grew, with a score of 55.2 compared to 52.6 in December. The value of new design contracts also reflected an easing in the pace of decline, rising to a score of 53.4 in January from 50.0 the previous month.

“While the downturn in design activity extended to four months in January, there are signs of easing,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “In particular, architecture firms reported that new project work has begun to increase, signifying that this decline in billings may reverse in the coming months.”
...
• Regional averages: Midwest (51.6); West (51.3); Northeast (50.9); South (46.9)

• Sector index breakdown: mixed practice (56.0); institutional (48.6); commercial/industrial (46.8); multi-family residential (45.9)

*Every January the AIA research department updates the seasonal factors used to calculate the ABI, resulting in a revision of recent ABI values.
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 49.3 in January, up from 48.4 in December. Anything below 50 indicates contraction 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 had been positive for 20 consecutive months but indicated a decline the last four months.   This index usually leads CRE investment by 9 to 12 months, so this index suggests a pickup in CRE investment in early 2023, but a slowdown in CRE investment later in 2023.

Note that multi-family billing turned down in September and has been negative for five consecutive months.   This suggests we will see a downturn in multi-family starts this year (multi-family starts probably have already peaked).

by Calculated Risk on 2/22/2023 09:45:00 AM

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

A brief excerpt:

The big story for January existing home sales was the sharp year-over-year (YoY) decline in sales. Also, active inventory increased sharply YoY, but is still historically low.

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

First, 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. The NAR reported sales were down 34.4% NSA YoY in January.
...
More local data coming in February for activity in January!

Important: Closed sales in January were mostly for contracts signed in November and December. Mortgage rates, according to the Freddie Mac PMMS, decreased to around 6.4% in December and 6.3% in January, so that will likely provide a small boost to closed sales in February.

My early expectation is we will see a somewhat smaller YoY sales decline in February, than in January, due to the decrease in mortgage rates in December and January.

However, in the 2nd half of February, mortgage rates have spiked again, and the MBA purchase index fell to the lowest level since 1995!

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

by Calculated Risk on 2/22/2023 07:00:00 AM

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

Mortgage applications decreased 13.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 17, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 13.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 72 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 18 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 41 percent lower than the same week one year ago.

“Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62 percent – the highest rate since November 2022. The jump led to the purchase applications index decreasing 18 percent to its lowest level since 1995,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected. The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”

Added Kan, “Refinance applications declined last week and remained more than 70 percent behind last year’s pace. Given that rates are over 2.5 percentage points higher than a year ago, we expect that refinance activity will remain depressed for some time.”
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.

Other than the lows in Q4 of 2022 and early this year, the refinance index was 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 41% year-over-year unadjusted.  

The purchase index is 19% below the pandemic low and at the lowest level since 1995!

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

by Calculated Risk on 2/21/2023 08:24:00 PM

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

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

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

• At 2:00 PM, FOMC Minutes, Meeting of January 31-February 1, 2023

by Calculated Risk on 2/21/2023 04:00:00 PM

Note: This is as of January 31st.

From the MBA: Share of Mortgage Loans in Forbearance Decreases to 0.64% in January

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey revealed that the total number of loans now in forbearance decreased by 6 basis points from 0.70% of servicers’ portfolio volume in the prior month to 0.64% as of January 31, 2023. According to MBA’s estimate, 320,000 homeowners are in forbearance plans.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 1 basis point to 0.30%. Ginnie Mae loans in forbearance decreased 8 basis points to 1.37%, and the forbearance share for portfolio loans and private-label securities (PLS) decreased 17 basis points to 0.83%.

“The forbearance rate decreased across all investor types in January, as borrowers continued to recover from pandemic-related hardships,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “With the national emergency set to end on May 11 of this year, many borrowers will no longer have the option to initiate COVID-19-related forbearance. Mortgage forbearance in other forms – whether due to natural disasters or life events – will continue, albeit with different requirements and parameters.
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 has been generally decreasing.

At the end of January, there were about 320,000 homeowners in forbearance plans.

by Calculated Risk on 2/21/2023 02:17:00 PM

Earlier, in the CalculatedRisk Real Estate Newsletter on January existing home sales, NAR: Existing-Home Sales Decreased to 4.00 million SAAR in January, I mentioned that the median price was down more than normal seasonally.

Below is a table of the seasonal changes from annual peak to the following January over the last several years (all prices Not Seasonally Adjusted, NSA).

Seasonally prices typically peak in June (closed sales for contracts signed mostly in April and May).

And seasonally prices usually bottom the following January (contracts signed in November and December).

	2018	2019	2020	2021	2022
Peak Month	June	June	Oct	June	June
To following Jan	-8.9%	-6.7%	-3.0%	-3.4%	-13.2%

In 2020, prices increased late into the year and only declined slightly seasonally (the start of the pandemic buying boom), and in 2021, median prices only declined about 3% from peak to bottom.

But the decline from the 2022 peak to January 2023 of 13.2% is larger than in the pre-pandemic years. And we will probably see further price weaknesses, putting median prices down year-over-year soon.

Last year, closing median prices increased 2.7% in February, 4.3% in March, 4.3% in April and 3.3% in May, all NSA.

If median prices are up less than 1.3% month-to-month in February 2023, median prices will be down year-over-year!

by Calculated Risk on 2/21/2023 10:47:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Decreased to 4.00 million SAAR in January

Excerpt:

On prices, the NAR reported:

The median existing-home price3 for all housing types in January was $359,000, an increase of 1.3% from January 2022 ($354,300), as prices climbed in three out of four U.S. regions while falling in the West. This marks 131 consecutive months of year-over-year increases, the longest-running streak on record.

Median prices are distorted by the mix (repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices).

The YoY change in the median price peaked at 25.2% in May 2021 and has now slowed to 1.3%. Note that the median price usually starts falling seasonally in July, so the 2.0% decline in January in the median price was partially seasonal, however the 13.2% decline in the median price over the last seven months has been much larger than the usual seasonal decline.

It is likely the median price will be down year-over-year soon - and the Case-Shiller index will follow.

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

by Calculated Risk on 2/21/2023 10:15:00 AM

From the NAR: Existing-Home Sales Descended 0.7% in January

Existing-home sales fell for the twelfth straight month in January, according to the National Association of Realtors®. Month-over-month sales were mixed among the four major U.S. regions, as the South and West registered increases, while the East and Midwest experienced declines. All regions recorded year-over-year declines.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops – slid 0.7% from December 2022 to a seasonally adjusted annual rate of 4.00 million in January. Year-over-year, sales retreated 36.9% (down from 6.34 million in January 2022).
...
Total housing inventory registered at the end of January was 980,000 units, up 2.1% from December and 15.3% from one year ago (850,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, unchanged from December but up from 1.6 months in January 2022.
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 January (4.00 million SAAR) were down 0.7% from the previous month and were 36.9% below the January 2022 sales rate.

Sales were just above the pandemic low of 4.01 million SAAR.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 0.99 million in January from 0.96 million in December.

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 15.3% year-over-year (blue) in January compared to January 2022.

Months of supply (red) was unchanged at 2.9 months in January from 2.9 months in December.

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

by Calculated Risk on 2/21/2023 08:24:00 AM

CoreLogic: US Annual Rent Price Growth Dropped by Nearly Half in December

Rent price gains declined in December for the eighth straight month on an annual basis, but the 6.4% national increase remained higher than pre-pandemic levels. ...

“U.S. single-family rental price growth closed out 2022 at about half of what it was one year ago,” said Molly Boesel, principal economist at CoreLogic. “However, while rent growth has been slowing, it still rose at more than double the pre-pandemic rate. Rental price gains began increasing near the end of 2020 and have risen by about an average of $300 in the past two years. Annual single-family rent growth is projected to slow throughout 2023, but it will likely not decline by enough to wipe out gains from the past two years.”
emphasis added

Click on graph for larger image.

This graph from CoreLogic shows the year-over-year change in rents for several price tiers.

This index was reported to be up 6.4% YoY in December, after rising 7.5% YoY in November and 8.8% YoY in October.