by Calculated Risk on 10/19/2023 12:00:00 PM

Speech by Chair Powell on the economic outlook. Excerpts:

Inflation readings turned lower over the summer, a very favorable development. The September inflation data continued the downward trend but were somewhat less encouraging. Shorter-term measures of core inflation over the most recent three and six months are now running below 3 percent. But these shorter-term measures are often volatile. In any case, inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters. While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent.
...
To date, declining inflation has not come at the cost of meaningfully higher unemployment—a highly welcome development, but a historically unusual one. Healing of supply chains in conjunction with the rebalancing of demand and supply in the labor market has allowed disinflation without substantially weaker economic activity. Indeed, economic growth has consistently surprised to the upside this year, as most recently seen in the strong retail sales data released earlier this week. Forecasters generally expect gross domestic product to come in very strong for the third quarter before cooling off in the fourth quarter and next year. Still, the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions.
emphasis added

by Calculated Risk on 10/19/2023 10:40:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Decreased to 3.96 million SAAR in September; New Cycle Low

Excerpt:

Sales Year-over-Year and Not Seasonally Adjusted (NSA)

The fourth graph shows existing home sales by month for 2022 and 2023.

Sales declined 15.4% year-over-year compared to September 2022. This was the twenty-fifth consecutive month with sales down year-over-year. This was a new cycle low, below the 4.00 million SAAR in January 2023.

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

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

From the NAR: Existing-Home Sales Fell 2.0% in September

Existing-home sales faded in September, according to the National Association of REALTORS®. Among the four major U.S. regions, sales rose in the Northeast but receded in the Midwest, South and West. All four regions registered year-over-year sales declines.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – waned 2.0% from August to a seasonally adjusted annual rate of 3.96 million in September. Year-over-year, sales dropped 15.4% (down from 4.68 million in September 2022).
...
Total housing inventory registered at the end of September was 1.13 million units, up 2.7% from August but down 8.1% from one year ago (1.23 million). Unsold inventory sits at a 3.4-month supply at the current sales pace, up from 3.3 months in August and 3.2 months in September 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 September (3.96 million SAAR) were down 2.0% from the previous month and were 15.4% below the September 2022 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.13 million in September down from 1.10 million the previous month.

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 8.1% year-over-year (blue) in September compared to September 2022.

Months of supply (red) increased to 3.4 months in September from 3.3 months the previous month.

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

by Calculated Risk on 10/19/2023 08:30:00 AM

The DOL reported:

In the week ending October 14, the advance figure for seasonally adjusted initial claims was 198,000, a decrease of 13,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 209,000 to 211,000. The 4-week moving average was 205,750, a decrease of 1,000 from the previous week's revised average. The previous week's average was revised up by 500 from 206,250 to 206,750.
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 205,750.

The previous week was revised up.

Weekly claims were lower than the consensus forecast.

by Calculated Risk on 10/18/2023 08:33:00 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 210 thousand initial claims, up from 209 thousand last week.

• Aslo at 8:30 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of -6.8, up from -13.5.

• At 10:00 AM, Existing Home Sales for September from the National Association of Realtors (NAR). The consensus is for 3.94 million SAAR, down from 4.04 million in August.

• At 12:00 PM, Discussion, Fed Chair Jerome Powell, Economic Outlook, At the Economic Club of New York (ECNY) Luncheon, New York, New York

by Calculated Risk on 10/18/2023 02:26:00 PM

Today, in the CalculatedRisk Real Estate Newsletter: 30-Year Mortgage Rates Hit 8.0%

Excerpt:

Mortgage News Daily reports 30-year fixed rate mortgages rose to 8.0% today (for top tier scenarios).

This will mostly impact closed sales in November and December, and strongly suggests we will see new cycle lows for existing home sales over the winter.

Note: The National Association of Realtors (NAR) is scheduled to release September existing home sales tomorrow, Thursday, October 19th, at 10:00 AM ET. The consensus is the NAR will report sales of 3.94 million SAAR, down from 4.04 million in August.

Housing economist Tom Lawler expects the NAR to report sales of 4.00 million SAAR for September.

Due to the impact of Hurricane Ian in September 2022, existing home sales are up year-over-year in Florida, and that might have kept seasonally adjusted sales from hitting a new cycle low in September (it will be close).

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

by Calculated Risk on 10/18/2023 02:00:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of St. Louis based on information collected on or before October 6, 2023. "

Most Districts indicated little to no change in economic activity since the September report. Consumer spending was mixed, especially among general retailers and auto dealers, due to differences in prices and product offerings. Tourism activity continued to improve, although some Districts reported slight slowing in consumer travel, and a few Districts noted an uptick in business travel. Banking contacts reported slight to modest declines in loan demand. Consumer credit quality was generally described as stable or healthy, with delinquency rates still historically low but slightly increasing. Real estate conditions were little changed and the inventory of homes for sale remained low. Manufacturing activity was mixed, although contacts across multiple Districts noted an improving outlook for the sector. The near-term outlook for the economy was generally described as stable or having slightly weaker growth. Expectations of firms for which the holiday shopping season is an important driver of sales were mixed.

Labor market tightness continued to ease across the nation. Most Districts reported slight to moderate increases in overall employment, and firms were hiring less urgently.
emphasis added

The beige book reports have shown far less economic growth in Q3 than the key economic indicators.

by Calculated Risk on 10/18/2023 12:00:00 PM

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

From the AIA: AIA/Deltek Architecture Billings Index Reports New Decline in Business Condition

Business conditions at architecture firms declined again in September, the AIA/Deltek Architecture Billings Index (ABI) reports. The score of 44.8 for September is the lowest score reported since December 2020 during the height of the pandemic. Any score below 50.0 indicates decreasing business conditions and this score indicates a significant increase in firms reporting declining billings.

“The September ABI score reflects a marked downturn in business conditions at architecture firms, with the sharpest decline observed since the peak of the pandemic," said Kermit Baker, PhD, AIA Chief Economist. "While more firms are reporting a decrease in billings, the report also shows the hesitance among clients to commit to new projects with a slump in newly signed design contracts. As a result, backlogs at architecture firms fell to 6.5 months on average in the third quarter, their lowest level since the fourth quarter of 2021."

It's clear that all regions of the country are feeling this impact, with firms in the West continuing to face particularly challenging conditions Only one sector, firms with an institutional specialization, remained flat while all other sectors reported declining billings. Firms with a multifamily residential specialization saw more decline, a continuation of month over month declines since August 2022.
...
• Regional averages: Northeast (46.4); South (46.2); Midwest (49.3); West (44.3)

• ector index breakdown: commercial/industrial (45.0); institutional (50.1); mixed practice (firms that do not have at least half of their billings in any one other category) (46.2); multifamily residential (43.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 44.8 in September, down from 48.1 in August. 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 fourteen consecutive months (with revisions).   This suggests we will see a further weakness in multi-family starts.

by Calculated Risk on 10/18/2023 09:14:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: September Housing Starts: Near Record Number of Multi-Family Housing Units Under Construction

Excerpt:

The third graph shows the month-to-month comparison for total starts between 2022 (blue) and 2023 (red).

Total starts were down 7.2% in September compared to September 2022.  And starts year-to-date are down 12.1% compared to last year.

Starts have been down year-over-year for 15 of the last 17 months (May and July 2023 were the exceptions), and total starts will be down this year - although the year-over-year comparisons will be somewhat easier in Q4.

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

by Calculated Risk on 10/18/2023 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in September were at a seasonally adjusted annual rate of 1,358,000. This is 7.0 percent above the revised August estimate of 1,269,000, but is 7.2 percent below the September 2022 rate of 1,463,000. Single‐family housing starts in September were at a rate of 963,000; this is 3.2 percent above the revised August figure of 933,000. The September rate for units in buildings with five units or more was 383,000.

Building Permits:
Privately‐owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,473,000. This is 4.4 percent below the revised August rate of 1,541,000 and is 7.2 percent below the September 2022 rate of 1,588,000. Single‐family authorizations in September were at a rate of 965,000; this is 1.8 percent above the revised August figure of 948,000. Authorizations of units in buildings with five units or more were at a rate of 459,000 in September.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts since 2000.

Multi-family starts (blue, 2+ units) increased in September compared to August.   Multi-family starts were down 31.4% year-over-year in September.

Single-family starts (red) increased in September and were up 8.6% year-over-year.

The second graph shows single and multi-family housing starts since 1968.

This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse in single-family starts.

Total housing starts in September were below expectations and starts in July and August were revised down slightly, combined.

I'll have more later …