by Calculated Risk on 6/07/2023 09:01:00 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 238 thousand initial claims, up from 232 thousand last week.

• At 12:00 PM, Q1 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 6/07/2023 03:13:00 PM

From Dodge Data Analytics: Dodge Momentum Index Slides 2% in May Due to Weaker Commercial Planning

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, fell 2.0% in May to 180.5 (2000=100) from the revised April reading of 184.1. Over the month, the commercial component of the DMI fell 6.1%, while the institutional component improved 5.6%.

“The DMI dipped in May amid sustained weakness in commercial planning activity,” stated Sarah Martin, associate director of forecasting for Dodge Construction Network. “Conversely, institutional planning steadily improved over the month as research and development laboratories and hospital projects steadily entered planning. Sustained elevation in the federal funds rate and tighter lending standards will likely constrain growth in the DMI over the second half of 2023; however the index remains above the historical average. This paints an optimistic landscape for non-residential construction in mid-2024, as the economy recovers and the Fed begins to pull back rates.”

Commercial planning in May was negatively impacted by continued weakness in office and hotel planning activity. Institutional planning accelerated alongside steady growth in education, health and amusement projects. Year over year, the DMI remains 11% higher than in May 2022. The commercial and institutional components were up 7% and 18%, respectively.
...
The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 180.5 in May, down from 184.1 the previous month.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggests a slowdown towards the end of 2023 or in 2024.  

Commercial construction is a lagging economic indicator.

by Calculated Risk on 6/07/2023 11:52:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Could 6% to 7% 30-Year Mortgage Rates be the "New Normal"?

A brief excerpt:

A key pitch, by real estate agents for home buyers right now, is that they will likely be able to refinance at a lower mortgage rate in a few years. The argument is that once the Federal Reserve has inflation back down to the 2% target, 30-mortgage rates will decline, perhaps to around 5% or lower. Of course, no one expects to see 3% mortgage rates without another crisis.

This graph is from Mortgage News Daily and shows the 30-year mortgage rate since 2010. Rates were mostly in the 3.5% to 5% range for over a decade prior to the pandemic, but it is possible - without a recession or a crisis - that 6% to 7% mortgage rates could be the new normal.

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

by Calculated Risk on 6/07/2023 10:05:00 AM

From Manheim Consulting today: Wholesale Used-Vehicle Prices See Continued Declines in May

Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) decreased 2.7% in May from April. The Manheim Used Vehicle Value Index (MUVVI) declined to 224.5, down 7.6% from a year ago.

“Price erosion continued in May, with another month-over-month drop in the index bringing it 0.3 points below our January result,” said Chris Frey, senior manager of Economic and Industry insights for Cox Automotive. “Taking a longer view, May’s year-over-year decline accelerated from April and March; however, the rate of decline might slow over the next several months as we encounter the lower prices seen at auction from May through November last year. Two consecutive reads in either measure do not a trend make, as used retail inventory is still below last year, and that tends to keep buyers at the auction, supporting prices.”
emphasis added

Click on graph for larger image.

This index from Manheim Consulting is based on all completed sales transactions at Manheim’s U.S. auctions.

The Manheim index suggests used car prices decreased in May (seasonally adjusted) and were down 7.6% year-over-year (YoY).

by Calculated Risk on 6/07/2023 08:50:00 AM

The Census Bureau and the Bureau of Economic Analysis reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $74.6 billion in April, up $14.0 billion from $60.6 billion in March, revised.

April exports were $249.0 billion, $9.2 billion less than March exports. April imports were $323.6 billion, $4.8 billion more than March imports.
emphasis added

Click on graph for larger image.

Exports decreased and imports increased in April.

Exports are down 1% year-over-year; imports are down 4% year-over-year.

Both imports and exports decreased sharply due to COVID-19 and then bounced back - and both have been decreasing recently.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Note that net, exports of petroleum products are positive and have picked up.

The trade deficit with China decreased to $20.3 billion in March, from $30.4 billion a year ago.

The trade deficit was slightly less than the consensus forecast.

by Calculated Risk on 6/07/2023 07:00:00 AM

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

Mortgage applications decreased 1.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 2, 2023. This week’s results include an adjustment for the Memorial Day holiday.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 12 percent compared with the previous week. The Refinance Index decreased 1 percent from the previous week and was 42 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 13 percent compared with the previous week and was 27 percent lower than the same week one year ago.

“Mortgage rates declined last week from a recent high, but total application activity slipped for the fourth straight week. The 30-year fixed rate dipped to 6.81 percent, 10 basis points lower than last week but still the second highest rate of 2023 to date,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications were more than 30 percent lower than a year ago, as borrowers continue to grapple with the higher rate environment. Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers. There was less of a decline in government purchase applications last week, which was consistent with a growing share of first-time home buyers in the market.”
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.81 percent from 6.91 percent, with points decreasing to 0.66 from 0.83 (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 MBA mortgage purchase index.

According to the MBA, purchase activity is down 27% year-over-year unadjusted.  

Red is a four-week average (blue is weekly).  This is close to the lowest level since the mid 1990s.

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022 - and has mostly flat lined at a low level since then.

by Calculated Risk on 6/06/2023 08:22:00 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.

• At 8:30 AM, Trade Balance report for April from the Census Bureau. The consensus is the trade deficit to be $75.4 billion.  The U.S. trade deficit was at $64.2 Billion in March.

by Calculated Risk on 6/06/2023 01:12:00 PM

With the pandemic, there was a surge in 2nd home buying.

I'm looking at data for some second home markets - and I'm tracking those markets to see if there is an impact from lending changes, rising mortgage rates or the easing of the pandemic.

This graph is for South Lake Tahoe since 2004 through May 2023, and shows inventory (blue), and the year-over-year (YoY) change in the median price (12-month average).

Note: The median price is a 12-month average, and is distorted by the mix, but this is the available data.

Click on graph for larger image.

Following the housing bubble, prices declined for several years in South Lake Tahoe, with the median price falling about 50% from the bubble peak.

Currently active inventory is still very low and is down 32% year-over-year.   

Prices are down 0.7% YoY, even with inventory at historically low levels.

by Calculated Risk on 6/06/2023 10:15:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Early Look at Local Housing Markets in May

A brief excerpt:

This is a look at a few early reporting local markets in May. 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 May were mostly for contracts signed in March and April. Since 30-year fixed mortgage rates were in the 6% to 6.5% range in March and April - compared to the 4% to 5% range the previous year - closed sales were down significantly year-over-year in May.
...
In May, sales in these markets were down 26.6%. In April, these same markets were down 34.4% YoY Not Seasonally Adjusted (NSA).

This is a smaller YoY decline NSA than in April for these early reporting markets, however seasonally adjusted, it is closer. Note that there was one less selling day in April this year than in April 2022, but the same number of selling days each year in May.

Another factor in the smaller YoY decline was that sales were steadily declining last year due to higher mortgage rates. ...

This was a just a few early reporting markets. 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 6/06/2023 08:11:00 AM

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

From CoreLogic: CoreLogic: Home Price Growth Continues Annual Single-Digit Slowdown in April

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

Nationwide, single-family home price growth rose by 2% year over year in April. This marked the 135th consecutive month of annual growth but the sixth straight month of single-digit gains, which have slowed from an all-time high of nearly 20% annual appreciation in the spring of 2022.

Numerous economic concerns are contributing to buyer reluctance, including mortgage rate volatility and the related uncertainty surrounding the recent debt-ceiling debate. That said, a continued shortage of homes for sale could keep pressure on housing prices over the next 12 months. CoreLogic projects that home price growth will slow a bit more in 2023 before regaining steam to about 5% annual appreciation by April 2024.

“While mortgage rate volatility continues to cause buyer hesitation, the lack of for-sale homes is putting firm pressure on prices this spring, leading to above-average seasonal monthly gains and a rebound in home prices in most markets,” said CoreLogic Chief Economist Selma Hepp. ”Nevertheless, the recent surge in mortgage rates and continued inflation issues suggest that rates may remain elevated, leading home price appreciation to possibly relax this summer and return to average seasonal gains later in 2023.”

“Still, while slim inventory is pushing prices up once again and constraining affordability,” Hepp continued, “recent trends suggest that home price growth in 2023 will fall in line with the historical 4% annual average.“
...
U.S. home prices (including distressed sales) increased by 2% year over year in April 2023 compared with April 2022. On a month-over-month basis, home prices increased by 1.2% compared with March 2023.
emphasis added

This index was up 3.1% YoY in March.