by Calculated Risk on 8/01/2024 11:35:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 1.9% Below 2022 Peak

Excerpt:

It has been 18 years since the bubble peak. In the May Case-Shiller house price index released on Tuesday, the seasonally adjusted National Index (SA), was reported as being 73% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 11% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is 2% above the bubble peak.

People usually graph nominal house prices, but it is also important to look at prices in real terms.  As an example, if a house price was $300,000 in January 2010, the price would be $432,000 today adjusted for inflation (44% increase).  That is why the second graph below is important - this shows "real" prices.

The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
...
The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).

In real terms (using CPI), the National index is 1.9% below the recent peak, and the Composite 20 index is 2.5% below the recent peak in 2022. Both indexes increased slightly in May in real terms.

by Calculated Risk on 8/01/2024 10:30:00 AM

From the Census Bureau reported that overall construction spending decreased:

Construction spending during June 2024 was estimated at a seasonally adjusted annual rate of $2,148.4 billion, 0.3 percent below the revised May estimate of $2,154.8 billion. The June figure is 6.2 percent above the June 2023 estimate of $2,023.0 billion.
emphasis added

Both private and public spending decreased:

pending on private construction was at a seasonally adjusted annual rate of $1,664.6 billion, 0.3 percent below the revised May estimate of $1,668.8 billion. ...

In June, the estimated seasonally adjusted annual rate of public construction spending was $483.9 billion, 0.4 percent below the revised May estimate of $486.0 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Residential (red) spending is 5.4% below the recent peak in 2022.

Non-residential (blue) spending is 0.4% below the peak in January 2024.

Public construction spending is 0.6% below the peak in April 2024.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 7.3%. Non-residential spending is up 4.2% year-over-year. Public spending is up 7.3% year-over-year.

This was below consensus expectations for 0.2% increase in spending, however, total construction spending for the previous two months was revised up. 

This is probably just the start of weakness for private non-residential construction.

by Calculated Risk on 8/01/2024 10:00:00 AM

(Posted with permission). The ISM manufacturing index indicated expansion. The PMI® was at 46.8% in July, down from 48.5% in June. The employment index was at 43.4%, down from 49.3% the previous month, and the new orders index was at 47.1%, down from 49.3%.

From ISM: Manufacturing PMI® at 46.8% July 2024 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in July for the fourth consecutive month and the 20th time in the last 21 months, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The Manufacturing PMI® registered 46.8 percent in July, down 1.7 percentage points from the 48.5 percent recorded in June. The overall economy continued in expansion for the 51st month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index remained in contraction territory, registering 47.4 percent, 1.9 percentage points lower than the 49.3 percent recorded in June. The July reading of the Production Index (45.9 percent) is 2.6 percentage points lower than June’s figure of 48.5 percent. The Prices Index registered 52.9 percent, up 0.8 percentage point compared to the reading of 52.1 percent in June. The Backlog of Orders Index registered 41.7 percent, equaling its June reading. The Employment Index registered 43.4 percent, down 5.9 percentage points from June’s figure of 49.3 percent.
emphasis added

This suggests manufacturing contracted in July.  This was below the consensus forecast.

by Calculated Risk on 8/01/2024 08:30:00 AM

The DOL reported:

In the week ending July 27, the advance figure for seasonally adjusted initial claims was 249,000, an increase of 14,000 from the previous week's unrevised level of 235,000. The 4-week moving average was 238,000, an increase of 2,500 from the previous week's unrevised average of 235,500.
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 238,000.

The previous week was unrevised.

Weekly claims were higher than the consensus forecast.

by Calculated Risk on 7/31/2024 07:16:00 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 230 thousand initial claims, down from 235 thousand last week.

• At 10:00 AM, ISM Manufacturing Index for July. The consensus is for the ISM to be at 49.0, up from 48.5 in June. 

• At 10:00 AM, Construction Spending for June. The consensus is for a 0.2% increase in construction spending.

• Late, Light vehicle sales for July from the BEA. The consensus is for light vehicle sales to be 16.2 million SAAR in July, up from 15.3 million in June (Seasonally Adjusted Annual Rate).

by Calculated Risk on 7/31/2024 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 continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee's 2 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent;. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. 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; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Austan D. Goolsbee voted as an alternate member at this meeting.
emphasis added

by Calculated Risk on 7/31/2024 10:51:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Freddie Mac House Price Index Increased Slightly in June; Up 5.1% Year-over-year

A brief excerpt:

Freddie Mac reported that its “National” Home Price Index (FMHPI) increased 0.06% month-over-month on a seasonally adjusted (SA) basis in June. On a year-over-year basis, the National FMHPI was up 5.1% in June, down from up 5.7% YoY in May.  The YoY increase peaked at 19.1% in July 2021, and for this cycle, bottomed at up 0.9% YoY in May 2023. ...

As of June, 19 states and D.C. were below their previous peaks, Seasonally Adjusted. The largest seasonally adjusted declines from the recent peak were in Idaho (-4.2%), Montana (-2.5%), Arkansas (-2.0), Texas (-1.7%), Hawaii (-1.7%) and Utah (-1.6%).

For cities (Core-based Statistical Areas, CBSA), here are the 30 cities with the largest declines from the peak, seasonally adjusted. Austin continues to be the worst performing city.

There is much more in the article.

by Calculated Risk on 7/31/2024 10:00:00 AM

From the NAR: Pending Home Sales Rose 4.8% in June

Pending home sales in June ascended 4.8%, according to the National Association of REALTORS®. All four U.S. regions posted monthly gains in transactions. Year-over-year, the Northeast, Midwest and South registered declines, while the West increased.

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – grew to 74.3 in June. Year over year, pending transactions were down 2.6%. An index of 100 is equal to the level of contract activity in 2001.

"The rise in housing inventory is beginning to lead to more contract signings," said NAR Chief Economist Lawrence Yun. "Multiple offers are less intense, and buyers are in a more favorable position."
...
The Northeast PHSI ascended 3.0% from last month to 65.5, a decline of 0.3% from June 2023. The Midwest index rose 4.7% to 73.7 in June, down 4.2% from one year ago.

The South PHSI increased 6.3% to 89.3 in June, dropping 3.9% from the prior year. The West index climbed 3.4% in June to 58.4, up 1.0% from June 2023.
emphasis added

This was above expectations. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

by Calculated Risk on 7/31/2024 08:18:00 AM

From ADP: ADP National Employment Report: Private Sector Employment Increased by 122,000 Jobs in July; Annual Pay was Up 4.8%

Private sector employment increased by 122,000 jobs in July and annual pay was up 4.8 percent year-over-year, according to the July ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”). ...

“With wage growth abating, the labor market is playing along with the Federal Reserve's effort to slow inflation,” said Nela Richardson, chief economist, ADP. “If inflation goes back up, it won't be because of labor.”
emphasis added

This was below the consensus forecast of 168,000. The BLS report will be released Friday, and the consensus is for 175,000 non-farm payroll jobs added in July.

by Calculated Risk on 7/31/2024 07:00:00 AM

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

Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 26, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 3.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 32 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent lower than the same week one year ago.

"Mortgage rates were little changed last week, with the 30-year fixed mortgage rate unchanged at 6.82 percent," said Mike Fratantoni, MBA's SVP and Chief Economist. "In recent weeks, there have been some small bursts of refinance activity, particularly for FHA and VA loans. Last week, VA refi application volume dropped sharply, which drove the aggregate result. Borrowers may be waiting for signs that mortgage rates will drift lower as the Federal Reserve begins to cut short-term rates. Purchase volume also dropped slightly because of ongoing affordability challenges.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) remained unchanged at 6.82 percent, with points increasing to 0.62 from 0.59 (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 14% year-over-year unadjusted.  

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

Purchase application activity is up about 6% 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.