by Calculated Risk on 7/25/2024 10:55:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Watch Months-of-Supply!

A brief excerpt:

Both inventory and sales are well below normal levels, and I think we need to keep an eye on months-of-supply to forecast price changes. Historically nominal prices declined when months-of-supply approached 6 months - and that is unlikely this year - but we could see months-of-supply back to 2019 levels in the next month or two.

As I mentioned in a recent interview with Lance Lambert at ResiClub:

"I expect this measure to continue to increase, and be over 4 months soon – and to be above 2019 levels in a few months. This doesn’t mean national price declines, but it suggests price growth will slow significantly later this year. We might see national price decline with months-of-supply above 5 (as opposed to 6) since most potential sellers have substantial equity and might be willing to sell for a little less."

Months-of-supply was at 4.1 months in June compared to 4.3 months in June 2019. Note that months-of-supply peaked at 4.3 months in May and June 2019 and then declined to 4.2 months in July 2019.

What would it take to get months-of-supply back to 2019 levels in July?

There is much more in the article.

by Calculated Risk on 7/25/2024 08:37:00 AM

From the BEA: Gross Domestic Product, Second Quarter 2024 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.8 percent in the second quarter of 2024, according to the "advance" estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP increased 1.4 percent.

The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2). The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were health care, housing and utilities, and recreation services. Within goods, the leading contributors were motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment, and gasoline and other energy goods. The increase in private inventory investment primarily reflected increases in wholesale trade and retail trade industries that were partly offset by a decrease in mining, utilities, and construction industries. Within nonresidential fixed investment, increases in equipment and intellectual property products were partly offset by a decrease in structures. The increase in imports was led by capital goods, excluding automotive.

Compared to the first quarter, the acceleration in real GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in consumer spending. These movements were partly offset by a downturn in residential fixed investment.
emphasis added

PCE increased at a 2.3% annual rate, and residential investment decreased at a 1.4% rate. The advance Q2 GDP report, with 2.8% annualized increase, was above expectations.

I'll have more later ...

by Calculated Risk on 7/25/2024 08:33:00 AM

The DOL reported:

In the week ending July 20, the advance figure for seasonally adjusted initial claims was 235,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 243,000 to 245,000. The 4-week moving average was 235,500, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 500 from 234,750 to 235,250.
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 increased to 235,500.

The previous week was revised up.

Weekly claims were slightly lower than the consensus forecast.

by Calculated Risk on 7/24/2024 07:27:00 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, down from 243 thousand last week.

• Also at 8:30 AM, Gross Domestic Product, 2nd quarter (advance estimate), and annual update. The consensus is that real GDP increased 1.8% annualized in Q2, up from 1.4% in Q1.

• Also at 8:30 AM, Durable Goods Orders for June from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

• At 11:00 AM, Kansas City Fed Survey of Manufacturing Activity for July.

by Calculated Risk on 7/24/2024 02:03:00 PM

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

From the AIA: ABI June 2024: Business conditions remain soft at architecture firms

Billings at firms decreased for the seventeenth consecutive month, with an AIA/Deltek Architecture Billings Index (ABI) score of 46.4 (any score below 50 means that billings declined). Although somewhat fewer firms reported a decline in billings in June than in May, the majority continued to experience a decrease from the previous month. Indicators of future work remained generally soft as well, with only slightly more than half of responding firms reporting an increase in inquiries into new work. Firms also reported a decline in the value of newly signed design contracts for the third consecutive month. While many firms still have a healthy backlog of projects in the pipeline, 6.4 months on average, this is the smallest that backlogs have been in more than three years. Despite this ongoing softness, firms remain generally optimistic that conditions will start to improve once interest rates begin to decline but are likely to continue experiencing challenges at least until then.

Business conditions remained soft at firms across the country in June, except for those located in the Northeast, which reported a slight increase in billings for the first time since January 2023. However, conditions softened further at firms located in the other regions of the country, with particularly weak conditions reported at firms located in the Midwest. Billings also continued to decline at firms of all specializations in June. While conditions remained soft at firms with a multifamily residential specialization, conditions are now weaker at firms with other specializations for the first time in nearly two years, most notably at those with a commercial/industrial specialization.
...
The ABI score is a leading economic indicator of construction activity, providing an approximately nine-to-twelve-month glimpse into the future of nonresidential construction spending activity. The score is derived from a monthly survey of architecture firms that measures the change in the number of services provided to clients.
emphasis added

• Northeast (52.2); Midwest (40.9); South (43.9); West (43.1)

• Sector index breakdown: commercial/industrial (42.0); institutional (44.3); multifamily residential (45.1)

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 46.4 in June, up from 42.4 in May.  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 2025.

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

by Calculated Risk on 7/24/2024 10:41:00 AM

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales Decrease to 617,000 Annual Rate in June

Brief excerpt:

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 617 thousand. The previous three months were revised up sharply, combined.
...
The next graph shows new home sales for 2023 and 2024 by month (Seasonally Adjusted Annual Rate). Sales in June 2024 were down 7.4% from June 2023.

This is the 2nd consecutive year-over-year decline following 13 consecutive months with a year-over-year increase.

There is much more in the article.

by Calculated Risk on 7/24/2024 10:00:00 AM

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 617 thousand.

The previous three months were revised up sharply, combined.

Sales of new single-family houses in June 2024 were at a seasonally adjusted annual rate of 617,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent below the revised May rate of 621,000 and is 7.4 percent below the June 2023 estimate of 666,000.
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales were close to pre-pandemic levels.

The second graph shows New Home Months of Supply.

The months of supply increased in June to 9.3 months from 9.1 months in May.

The all-time record high was 12.2 months of supply in January 2009. The all-time record low was 3.3 months in August 2020.

This is well above the top of the normal range (about 4 to 6 months of supply is normal).

"The seasonally-adjusted estimate of new houses for sale at the end of June was 476,000. This represents a supply of 9.3 months at the current sales rate. "

Sales were below expectations of 640 thousand SAAR, however sales for the three previous months were revised up significantly, combined. I'll have more later today.

by Calculated Risk on 7/24/2024 07:00:00 AM

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

Mortgage applications decreased 2.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 19, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index increased 0.3 percent from the previous week and was 38 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 15 percent lower than the same week one year ago.

“Mortgage rates continued to ease, with the 30-year fixed rate dipping to 6.82 percent, the lowest level since February 2024,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications were up, driven by conventional and FHA application activity, as some borrowers took the opportunity to act. Furthermore, the conventional refi index was at its highest level since September 2022.”

Added Kan, “Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.82 percent from 6.87 percent, with points increasing to 0.59 from 0.57 (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 15% year-over-year unadjusted.  

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

Purchase application activity is up slightly from the lows in late October 2023, but still below the lowest levels during the housing bust.  

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022, and mostly flat lined since then with some increase recently.

by Calculated Risk on 7/23/2024 07:22:00 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 10:00 AM, New Home Sales for June from the Census Bureau. The consensus is for 640 thousand SAAR, up from 619 thousand in May.

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

by Calculated Risk on 7/23/2024 02:29:00 PM

From WardsAuto: July U.S. Light-Vehicle Sales Tracking to Strongest SAAR So Far in 2024 (pay content).  Brief excerpt:

An expected boost to volume in July from lost sales in June, caused by a cyberattack affecting dealer management systems, will not be as big as initially expected. Dealers apparently were quite adept at finding alternative ways to reporting sales and lost volume was less than thought. Still, July’s forecast SAAR of 16.1 million units is the highest for any month this year and inventory will enter August at a five-year high for the period.
emphasis added

Click on graph for larger image.

This graph shows actual sales from the BEA (Blue), and Wards forecast for July (Red).

On a seasonally adjusted annual rate basis, the Wards forecast of 16.1 million SAAR, would be up 5.3% from last month, and up 1.0% from a year ago.