by Calculated Risk on 9/21/2023 10:00:00 AM

From the NAR: Existing-Home Sales Decreased 0.7% in August

Existing-home sales moved lower in August, according to the National Association of REALTORS®. Among the four major U.S. regions, sales improved in the Midwest, were unchanged in the Northeast, and slipped in the South and West. All four regions recorded year-over-year sales declines.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – slid 0.7% from July to a seasonally adjusted annual rate of 4.04 million in August. Year-over-year, sales fell 15.3% (down from 4.77 million in August 2022).
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Total housing inventory registered at the end of August was 1.1 million units, down 0.9% from July and 14.1% from one year ago (1.28 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, identical to July and up from 3.2 months in August 2022.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1994.

Sales in August (4.04 million SAAR) were down 0.7% from the previous month and were 15.3% below the August 2022 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.10 million in August down from 1.11 million in June.

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 down 14.1% year-over-year (blue) in August compared to August 2022.

Months of supply (red) was unchanged at 3.3 months in August from 3.3 months in July.

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

by Calculated Risk on 9/21/2023 08:30:00 AM

The DOL reported:

In the week ending September 16, the advance figure for seasonally adjusted initial claims was 201,000, a decrease of 20,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 220,000 to 221,000. The 4-week moving average was 217,000, a decrease of 7,750 from the previous week's revised average. The previous week's average was revised up by 250 from 224,500 to 224,750.
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 217,000.

The previous week was revised up.

Weekly claims were lower than the consensus forecast.

by Calculated Risk on 9/20/2023 08:36:00 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 224 thousand initial claims, up from 220 thousand last week.

• At 8:30 AM, the Philly Fed manufacturing survey for September. The consensus is for a reading of 0.0, up from -12.0.

• At 10:00 AM, Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for 4.10 million SAAR, up from 4.07 million in July.

by Calculated Risk on 9/20/2023 02:17:00 PM

Statement here.

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

Here are the projections. Projections of the neutral Fed Funds rate increased again!

In June, the FOMC participants’ midpoint of the target level for the federal funds rate was at 5.625% at the end of 2023. The FOMC participants’ midpoint of the target range is now closer to 5.5% and declines to 5.125% in 2024.

The BEA reported real GDP increased at a 2.1% annual rate in Q2, after increasing at a 2.0% annual rate in Q1.  And real GDP is increasing around 3.0% annualized in Q3. Even with slower growth in Q4 - partially due to the likely government shutdown, the UAW strike, student loan payments, and higher oil prices, the FOMC projections for year-over-year growth in Q4 2023 was revised up sharply.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2023	2024	2025
Sept 2023	1.9 to 2.2	1.2 to 1.8	1.6 to 2.0
June 2023	0.7 to 1.2	0.9 to 1.5	1.6 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.8% in August. The FOMC's unemployment rate projection for Q4 was revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2023	2024	2025
Sept 2023	3.7 to 3.9	3.9 to 4.4	3.9 to 4.3
June 2023	4.0 to 4.3	4.3 to 4.6	4.3 to 4.6

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July 2023, PCE inflation increased 3.3 percent year-over-year (YoY), up from 3.0 percent YoY in June, and down from the recent peak of 7.0 percent in June 2022.  Projections for PCE inflation were mostly unchanged.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.2 to 3.4	2.3 to 2.7	2.0 to 2.3
June 2023	3.0 to 3.5	2.3 to 2.8	2.0 to 2.4

PCE core inflation increased 4.2 percent YoY, up from 4.1 percent in June, and down from the recent peak of 5.4 percent in February 2022.  This includes PCE measure of shelter that was up 7.8% YoY in July (even though asking rents are soft).  Core PCE inflation likely declined to around 3.8% in August, and the FOMC revised down their projections. 

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.6 to 3.9	2.5 to 2.8	2.0 to 2.4
June 2023	3.7 to 4.2	2.5 to 3.1	2.0 to 2.4

by Calculated Risk on 9/20/2023 02:00:00 PM

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

FOMC Statement:

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains 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 maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, 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; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
emphasis added

by Calculated Risk on 9/20/2023 11:46:00 AM

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

From the AIA: AIA/Deltek Architecture Billings Index Sees Softening Business Conditions in August

The AIA/Deltek Architecture Billings Index (ABI) eased modestly in August, with a score of 48.1, marking the eleventh consecutive month of essentially flat billings at architecture firms. Any score below 50.0 indicates decreasing business conditions. This follows a period of robust growth in 2021 and 2022. While inquiries into new projects remained relatively strong in August, the value of newly signed design contracts declined for the first time since April, indicating that fewer clients signed contracts for new projects than in the prior three months.

“Business conditions at architecture firms continue to be sluggish,” said Kermit Baker, PhD, AIA Chief Economist. “New project work coming into architecture firms as well ongoing project activity remain stalled in a relatively narrow range and exhibit very little month-to-month variation. Through this pause has taken pressure off tight staffing conditions across the profession, there is considerable uncertainty over the direction of future activity.”

Business conditions also remained soft at firms with a multifamily residential specialization and declined modestly at firms with an institutional specialization. However, firms with a commercial/industrial specialization reported billings growth for the third month in a row in August.
...
• Regional averages: Northeast (50.6); South (49.9); Midwest (48.1); West (45.8)

• Sector index breakdown: commercial/industrial (51.5); institutional (49.4); mixed practice (firms that do not have at least half of their billings in any one other category) (46.9); multifamily residential (44.1)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.1 in July, down from 50.0 in July. Anything below 50 indicates a decrease 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 usually leads CRE investment by 9 to 12 months, so this index suggests a slowdown in CRE investment into 2024.

Note that multi-family billing turned down in August 2022 and has been negative for thirteen consecutive months (with revisions).   This suggests we will see a further weakness in multi-family starts.

by Calculated Risk on 9/20/2023 09:41:00 AM

Today, in the Calculated Risk Real Estate Newsletter: 4th Look at Local Housing Markets in August

A brief excerpt:

Note: The National Association of Realtors (NAR) is scheduled to release August existing home sales tomorrow, Thursday, September 21st, at 10:00 AM ET. The consensus is the NAR will report sales of 4.10 million SAAR, up from 4.07 million in July.

Housing economist Tom Lawler expects the NAR to report sales of 4.07 million SAAR for August.
...
In August, sales in these markets were down 12.1% YoY. In July, these same markets were down 14.5% YoY Not Seasonally Adjusted (NSA).

This is a slightly smaller YoY decline NSA than in July for these markets. Note that there were the same number of selling days each year in August 2022 and August 2023.

A key factor in the smaller YoY decline was that sales were steadily declining last year due to higher mortgage rates - and sales in August on a seasonally adjusted annual rate (SAAR) basis will likely be close to the July sales rate (4.07 million SAAR).

Several local markets - like Illinois, Miami, New Jersey and New York - will report after the NAR release.

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

by Calculated Risk on 9/20/2023 07:00:00 AM

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

Mortgage applications increased 5.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 15, 2023. Last week’s results included an adjustment for the Labor Day holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 5.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 16 percent compared with the previous week. The Refinance Index increased 13 percent from the previous week and was 29 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 12 percent compared with the previous week and was 26 percent lower than the same week one year ago.

“Mortgage applications increased last week, despite the 30-year fixed rate edging back up to 7.31 percent – its highest level in four weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased for conventional and FHA loans over the week but remained 26 percent lower than the same week a year ago, as homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging. Refinance applications also increased last week but are still almost 30 percent lower than the same week last year.”

Added Kan, “The average loan size on a purchase application was $416,800, the highest level in six weeks. Home prices in many markets have been supported by low inventory and resilient housing demand for available homes.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.31 percent from 7.27 percent, with points remaining unchanged from 0.72 (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 26% year-over-year unadjusted.  

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

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 9/19/2023 07:47:00 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 August (a leading indicator for commercial real estate).

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 9/19/2023 01:32:00 PM

Notes: The expansion to the Panama Canal was completed in 2016 (As I noted several years ago), and some of the traffic that used the ports of Los Angeles and Long Beach is probably going through the canal. This might be impacting TEUs on the West Coast.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12-month average.

Click on graph for larger image.

On a rolling 12-month basis, inbound traffic decreased 0.4% in August compared to the rolling 12 months ending in July.   Outbound traffic decreased 0.2% compared to the rolling 12 months ending the previous month.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.  

Imports were down 4% YoY in August, and exports were down 2% YoY.  The next couple of months should see some pickup in imports as retailers stock up for the holidays.

The volume of containers unloaded in 2021 and 2022 was much stronger than normal because of all the ships waiting to unload due to the pandemic.