by Calculated Risk on 5/02/2023 03:30:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Lawler: AMH Net Seller of Existing Single-Family Homes, “Investor” Home Purchases Plunged

Brief excerpt:

Housing economist Tom Lawler brings us some interesting data from Invitation Homes and also from several public builders:

Invitation Homes Net Seller of SF Properties for Second Straight Quarter; Rent Growth Slows but Remains Elevated

Invitation Homes, the largest publicly-traded holder of single-family properties, reported that it disposed of slightly more single-family properties than it acquired last quarter, and that most of the small number of properties it acquired last quarter were from “builder partners.”  According to its press release, Invitation Homes (including its joint ventures) acquired 197 SF properties in the quarter ended 3/31/2023 (of which 151 were from builder partners), and disposed of 297 SF properties.  By comparison, in the previous quarter the company (including JVs) acquired 166 properties (81 from builder partners) and disposed of 199 SF properties.  As a result, the company’s total SF rental property holdings declined for the second straight quarter last quarter.  Here is a table showing acquisitions, dispositions, and total SF properties held by Invitation Homes (including joint ventures).

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

by Calculated Risk on 5/02/2023 02:04:00 PM

Today, in the Calculated Risk Real Estate Newsletter: A Policy Proposal to Increase the Utilization of the Current Housing Stock

A brief excerpt:

Here is a policy proposal that will likely help increase inventory in many areas (especially in high-cost areas) and would increase the utilization of the current housing stock.

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

by Calculated Risk on 5/02/2023 10:06:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings decreased to 9.6 million on the last business day of March, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations were little changed at 6.1 million and 5.9 million, respectively. Within separations, quits (3.9 million) changed little, while layoffs and discharges (1.8 million) increased.
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 March the employment report this Friday will be for April.

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 decreased in March to 9.6 million from 10.0 million in February.

The number of job openings (black) were down 20% year-over-year. 

Quits were down 14% year-over-year. These are voluntary separations. (See light blue columns at bottom of graph for trend for "quits").

by Calculated Risk on 5/02/2023 08:38:00 AM

Notes: This CoreLogic House Price Index report is for March. The recent Case-Shiller index release was for February. The CoreLogic HPI is a three-month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic: March US Annual Home Price Growth Dips to Lowest Rate in More Than a Decade

CoreLogic® ... today released the CoreLogic Home Price Index (HPI™) and HPI Forecast™ for March 2023.

U.S. home price growth fell to 3.1% in March, the lowest rate of appreciation since the spring of 2012. While home price growth rose for the 134th consecutive month, it declined from one year earlier in 10 states, mostly those in the West, which partially reflects the region’s lack of affordability and continued inventory shortages. Also, demand for higher-priced homes is slowing compared with median-priced homes, thus pulling appreciation down in that region at a faster pace.

Some potential homebuyers remain hesitant due to inflation; slowing job gains and wage growth; a potential recession; and interest rates that are still elevated above a mortgage rate of 5.5% that would likely attract more buyers to the market. As a result of these conditions, CoreLogic projects that U.S. annual home price growth will continue to decline over the spring and early summer before picking back up later in 2023.

“While housing markets across the country continue to send mixed signals, prices in many large metros appeared to have turned the corner, with the U.S. recording a second month of consecutive monthly gains,” said Selma Hepp, chief economist at CoreLogic. “At 1.6%, the month-over-month increase was twice the average seen between 2015 and 2020.”

“The monthly rebound in home prices underscores the lack of inventory in this housing cycle,” Hepp continued. “In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country.”
...
U.S. home prices (including distressed sales) increased by 3.1% year over year in March 2023 compared with March 2022. On a month-over-month basis, home prices increased by 1.6% compared with February 2023.
emphasis added

This index was up 4.4% YoY in February.

by Calculated Risk on 5/01/2023 09:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Jump After First Republic Sale

There are different levels of "failure" and the resolution that arrived today is one of the more palatable versions. In other words, things didn't end as poorly as they might have, so investors were able to lighten up on the bonds that were previously purchased as a safe haven.

That was how the day began for rates, but it got worse after a key economic report on the manufacturing sector came in stronger than expected. In general, strong economic data puts upward pressure on rates.

The average lender moved at least an eighth of a percent higher for a conventional 30yr fixed. [30 year fixed 6.73%]
emphasis added

Tuesday:
• At 8:00 AM ET, Corelogic House Price index for March.

• At 10:00 AM, Job Openings and Labor Turnover Survey for March from the BLS.

• All day, Light vehicle sales for April. The expectation is for light vehicle sales to be 14.8 million SAAR in April, unchanged from 14.8 million in March (Seasonally Adjusted Annual Rate).

by Calculated Risk on 5/01/2023 06:12:00 PM

From Treasury Secretary Janet Yellen to Speaker McCarthy:

"After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time."

The following is relevant today. 

From Federal Reserve Staff in 2013 on the debt ceiling debate: Possible Macroeconomic Effects of a Temporary Federal Debt Default. Excerpts:

Key considerations in evaluating the consequences of a debt default

• Such an event would be unprecedented. Although other countries have defaulted on their sovereign debt, these defaults occurred in situations where the government could not feasibly continue to service its debt. Failure to raise the U.S. federal debt ceiling, in contrast, would be a voluntary decision to stop meeting the government’s obligations even though it has no problems doing so. In addition, no other nation that defaulted on its sovereign debt ever enjoyed two key features of the U.S. economy—Treasury securities are the world’s “safe” asset and the dollar is the world’s main reserve currency. For these reasons, we have essentially no historical experience to help us predict the likely consequences of a failure by the Congress and the Administration to raise the debt ceiling.

• The financial market effects of a debt default would be highly uncertain, both because of its unprecedented nature, and because (as events in recent years have illustrated) we have only a limited understanding of the dynamics of the financial system when hit with a major shock.

o Yields on Treasury securities could rise noticeably, even if the default lasted only a day or two. And if the debt limit impasse dragged on for weeks, it could conceivably lead investors to demand a premium similar to that paid on AAA corporate bonds.

o Given that Treasury yields serve as a benchmark rate for the pricing of other securities, and given that a prolonged stand-off would probably make the general economic outlook much more uncertain, private interest rates could rise sharply. Rising interest rates and risk premiums would in turn push stock prices down appreciably.

o In some extreme scenarios with a prolonged default, financial markets could be severely impaired. For example, the functioning of the repo market could be compromised and some money market mutual funds could experience liquidity pressures.

o A debt default could also have some international repercussions. For example, a prolonged default might increase the reluctance of investors to hold Treasury securities and perhaps dollar-denominated assets more generally. Although the resulting rebalancing in portfolios might be relatively gradual, it could lead to a decline in the dollar over time (although a sudden drop could not be ruled out) and a higher “country-risk” premium on all U.S. assets.

• A debt default would also adversely affect the economy through its direct effects on aggregate income flows and government operations if the impasse in raising the debt limit lasted for several weeks.

o Currently, an extremely large portion of federal government spending is funded through borrowing (in part because tax payments are concentrated in other months). From mid-October through mid-November, for example, only 65 percent of projected spending would be covered by revenues. Thus, 35 percent of government cash outlays would need to be cut if a debt limit accord was not reached until the middle of November.

o Assuming that the Treasury prioritizes its payments to cover all scheduled net interest payments, other federal spending would be temporarily reduced by the following amounts (expressed in nominal terms at an annual rate): $340 billion in nominal federal purchases; $630 billion in Social Security, Medicare, and other transfer payments; and $150 billion in grants to state and local governments.
emphasis added

Usually the debt ceiling (I prefer "default ceiling") is raised with a clean bill. It is up to Congress. As Senator Mitch McConnell noted in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

by Calculated Risk on 5/01/2023 10:46:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Year-over-year Rent Growth Continues to Decelerate

A brief excerpt:

Tracking rents is important for understanding the dynamics of the housing market. For example, the sharp increase in rents helped me deduce that there was a surge in household formation in 2021 (See from September 2021: Household Formation Drives Housing Demand). This has been confirmed (mostly due to work-from-home), and also led to the supposition that household formation would slow sharply now (mostly confirmed) and that asking rents might decrease in 2023 on a year-over-year basis.

This is important for understanding housing, but also for monetary policy. Asking rents reflect new leases, whereas most rental units see annual rent increases. These annual increases are captured by the consumer price index (CPI) and personal consumption expenditures (PCE) prices. So, shelter in CPI is significantly lagged to asking rents.

But there is more! Once we understand that asking rents will likely be flat to down year-over-year - due to the slowdown in household formation and more supply coming on the market - this suggests shelter in the CPI could be flat in the future. That means we shouldn’t just look at various measures ex-shelter, but we should assume shelter will be lower than overall inflation in the future!
...
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through March 2023, except CoreLogic is through February and Apartment List is through April 2023.
...
The CoreLogic measure is up 5.0% YoY in February, down from 5.7% in January, and down from a peak of 13.9% in April 2022.

The Zillow measure is up 6.0% YoY in March, down from 6.3% YoY in February, and down from a peak of 16.9% YoY in February 2022.

The ApartmentList measure is up 1.7% YoY as of April, down from 2.4% in March, and down from a peak of 18.3% YoY November 2021.
...
My view is it is likely that we will see a year-over-year decline in asking rents sometime in 2023.

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

by Calculated Risk on 5/01/2023 10:19:00 AM

From the Census Bureau reported that overall construction spending increased:

Construction spending during March 2023 was estimated at a seasonally adjusted annual rate of $1,834.7 billion, 0.3 percent above the revised February estimate of $1,829.6 billion. The March figure is 3.8 percent above the March 2022 estimate of $1,768.2 billion.
emphasis added

Both private and public spending increased:

Spending on private construction was at a seasonally adjusted annual rate of $1,435.1 billion, 0.3 percent above the revised February estimate of $1,430.8 billion. ...

In March, the estimated seasonally adjusted annual rate of public construction spending was $399.6 billion, 0.2 percent above the revised February estimate of $398.8 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 12.4% below the recent peak.

Non-residential (blue) spending is at a new peak.

Public construction spending is at a new peak.

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

On a year-over-year basis, private residential construction spending is down 10.0%. Non-residential spending is up 21.3% year-over-year. Public spending is up 15.0% year-over-year.

This was slightly above consensus expectations of a 0.2% increase in spending; however, construction spending for the previous two months was revised down (all private residential).

by Calculated Risk on 5/01/2023 10:03:00 AM

(Posted with permission). The ISM manufacturing index indicated contraction. The PMI® was at 47.1% in March, up from 46.3% in March. The employment index was at 50.2%, up from 46.9% last month, and the new orders index was at 45.7%, up from 44.3%.

From ISM: Manufacturing PMI® at 47.1% April 2023 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in April for the sixth 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 April Manufacturing PMI® registered 47.1 percent, 0.8 percentage point higher than the 46.3 percent recorded in March. Regarding the overall economy, this figure indicates a fifth month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 45.7 percent, 1.4 percentage points higher than the figure of 44.3 percent recorded in March. The Production Index reading of 48.9 percent is a 1.1-percentage point increase compared to March’s figure of 47.8 percent. The Prices Index registered 53.2 percent, up 4 percentage points compared to the March figure of 49.2 percent. The Backlog of Orders Index registered 43.1 percent, 0.8 percentage point lower than the March reading of 43.9 percent. The Employment Index elevated into expansion territory, registering 50.2 percent, up 3.3 percentage points from March’s reading of 46.9 percent. The Supplier Deliveries Index figure of 44.6 percent is 0.2 percentage point lower than the 44.8 percent recorded in March; this is the index’s lowest reading since March 2009 (43.2 percent). The Inventories Index dropped 1.2 percentage points to 46.3 percent, lower than the March reading of 47.5 percent. The New Export Orders Index reading of 49.8 percent is 2.2 percentage points higher than March’s figure of 47.6 percent. The Imports Index remained in contraction territory, though just barely, at 49.9 percent, 2 percentage points above the 47.9 percent reported in March.
emphasis added

This suggests manufacturing contracted in April.  This was slightly above the consensus forecast. 

by Calculated Risk on 5/01/2023 08:11:00 AM

Altos reports that active single-family inventory was up 2.0% week-over-week. It appears inventory has finally bottomed seasonally.  This is the highest inventory level since the week ending Feb 24th.

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of April 28th, inventory was at 422 thousand (7-day average), compared to 414 thousand the prior week.   

Year-to-date, inventory is down 14.0%.  And inventory is up 4.1% from the bottom two weeks ago.

The second graph shows the seasonal pattern for active single-family inventory since 2015.

The red line is for 2023.  The black line is for 2019.  Note that inventory is up from the previous two years (the record low was in 2022), but still well below normal levels.

Inventory was up 46.7% compared to the same week in 2022 (last week it was up 52.5%), and down 51.3% compared to the same week in 2019 (last week down 52.1%). 

Mike Simonsen discusses this data regularly on Youtube.