by Calculated Risk on 7/26/2024 08:53:00 AM

Here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report this morning, both through June 2024.

CPI Shelter was up 5.1% year-over-year in June, down from 5.4% in May, and down from the cycle peak of 8.2% in March 2023.

Housing (PCE) was up 5.3% YoY in June, down from 5.5% in May, and down from the cycle peak of 8.3% in April 2023.

Since asking rents are mostly flat year-over-year, these measures will slowly continue to decline over the next year.

The second graph shows PCE prices, Core PCE prices and Core ex-housing over the last 3 months (annualized):

Key measures are slightly above the Fed's target on a 3-month basis. Note: There appears to be some residual seasonality distorting PCE prices in Q1, especially in January.

3-month annualized change:

PCE Price Index: 1.5%
Core PCE Prices: 2.3%
Core minus Housing: 1.8%

by Calculated Risk on 7/26/2024 08:30:00 AM

The BEA released the Personal Income and Outlays report for June:

Personal income increased $50.4 billion (0.2 percent at a monthly rate) in June, according to estimates released today by the U.S. Bureau of Economic Analysis. Disposable personal income (DPI), personal income less personal current taxes, increased $37.7 billion (0.2 percent) and personal consumption expenditures (PCE) increased $57.6 billion (0.3 percent).

The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent. Real DPI increased 0.1 percent in June and real PCE increased 0.2 percent; goods increased 0.2 percent and services increased 0.2 percent .
emphasis added

The June PCE price index increased 2.5 percent year-over-year (YoY), down from 2.6 percent YoY in May, and down from the recent peak of 7.0 percent in June 2022.

The PCE price index, excluding food and energy, increased 2.6 percent YoY, unchanged from 2.6 percent in May, and down from the recent peak of 5.4 percent in February 2022.

The following graph shows real Personal Consumption Expenditures (PCE) through June 2024 (2017 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

Personal income was slightly below expectations, and PCE was slightly above expectations.

Inflation was slightly below expectations.

by Calculated Risk on 7/25/2024 08:39:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Friday:
• At 8:30 AM ET, Personal Income and Outlays, June 2024. The consensus is for a 0.4% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.  PCE prices are expected to be up 2.6% YoY, and core PCE prices up 2.6% YoY.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for July). The consensus is for a reading of 66.0.

by Calculated Risk on 7/25/2024 02:07:00 PM

From STR: U.S. hotel results for week ending 20 July

The U.S. hotel industry reported higher performance results than the previous week and positive comparisons year over year, according to CoStar’s latest data through 20 July. ...

14-20 July 2024 (percentage change from comparable week in 2023):

• Occupancy: 73.5% (+1.0%)
• Average daily rate (ADR): US$165.91 (+2.4%)
• Revenue per available room (RevPAR): US$122.02 (+3.4%)
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

Click on graph for larger image.

The red line is for 2024, blue is the median, and dashed light blue is for 2023.  Dashed purple is for 2018, the record year for hotel occupancy. 

The 4-week average of the occupancy rate is tracking last year and is below the median rate for the period 2000 through 2023 (Blue).

Note: Y-axis doesn't start at zero to better show the seasonal change.

The 4-week average of the occupancy rate will increase seasonally for a few more weeks due to summer recreational travel.  

by Calculated Risk on 7/25/2024 02:07:00 PM

What this means: On a weekly basis, Realtor.com reports the year-over-year change in active inventory and new listings. On a monthly basis, they report total inventory. For June, Realtor.com reported inventory was up 36.7% YoY, but still down 32.4% compared to April 2017 to 2019 levels. 

 Now - on a weekly basis - inventory is up 36.9% YoY.

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report: Weekly Housing Trends View—Data for Week Ending July 20, 2024

• Active inventory increased, with for-sale homes 36.9% above year-ago levels.

For the 37th week in a row, the number of for-sale homes grew compared with one year ago. This past week, the inventory of homes for sale grew by 36.9% compared with last year, slightly higher than the rate observed in the previous week. Despite nearly 8 months of building inventory, buyers still see more than 30% fewer homes for sale compared with pre-pandemic.

• New listings–a measure of sellers putting homes up for sale–were up this week by 6.4% from one year ago.

This week marks 15 out of the past 16 weeks with new listings growth, similar to the 6.3% annual rate seen in June but roughly half of what it was two months ago. Broadly speaking, the number of new homes for sale remains historically low and is still below the 2017-2022 levels, even with recent improvements.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was up year-over-year for the 37th consecutive week.  

However, inventory is still historically low.

New listings remain below typical pre-pandemic levels.

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.