by Calculated Risk on 9/18/2024 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,356,000. This is 9.6 percent above the revised July estimate of 1,237,000 and is 3.9 percent above the August 2023 rate of 1,305,000. Single-family housing starts in August were at a rate of 992,000; this is 15.8 percent above the revised July figure of 857,000. The August rate for units in buildings with five units or more was 333,000.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,475,000. This is 4.9 percent above the revised July rate of 1,406,000, but is 6.5 percent below the August 2023 rate of 1,578,000. Single-family authorizations in August were at a rate of 967,000; this is 2.8 percent above the revised July figure of 941,000. Authorizations of units in buildings with five units or more were at a rate of 451,000 in August.
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 August compared to July.   Multi-family starts were up 5.5% year-over-year.

Single-family starts (red) increased in August and were up 5,1% 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 and recovery in single-family starts.

Total housing starts in August were above expectations and starts in June and July were revised slightly.  

I'll have more later …

by Calculated Risk on 9/18/2024 07:00:00 AM

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

Mortgage applications increased 14.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending September 13, 2024. Last week’s results included an adjustment for the Labor Day holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 14.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 26 percent compared with the previous week. The Refinance Index increased 24 percent from the previous week and was 127 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 15 percent compared with the previous week and was 0.4 percent lower than the same week one year ago.

“Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower. The 30-year fixed mortgage rate, at 6.15 percent, is now at its lowest since September 2022 and is more than a full percentage point lower than a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications were up 24 percent – more than double last year’s pace, with both conventional and government activity jumping to the fastest pace of refinancing since 2022.”

Added Kan, “There was also an increase in purchase applications, and it is notable that conventional purchase applications increased to a pace ahead of last year, which also drove overall purchase applications very close to year-ago levels. Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.15 percent from 6.29 percent, with points increasing to 0.56 from 0.55 (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 0.4% year-over-year unadjusted (mostly unchanged year-over-year!).  

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

Purchase application activity is up about 17% 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 for two years - but has increased recently as mortgage rates declined.

by Calculated Risk on 9/17/2024 07:19:00 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 8:30 AM, Housing Starts for August. The consensus is for 1.250 million SAAR, up from 1.238 million SAAR.

• 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. The Fed is expected to cut rates 25bp at this meeting.

• Also 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 9/17/2024 01:00:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Lawler: Early Read on Existing Home Sales in August

A brief excerpt:

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 3.88 million in August, down 1.8% from July’s preliminary pace and down 3.7% from last August’s seasonally adjusted pace. Unadjusted sales should show a slightly larger YOY % decline, as there was one fewer business day this August compared to last August.

Local realtor/MLS reports suggest that the existing single-family home sales price last month was up 3.5% from last August.

CR Note: The National Association of Realtors (NAR) is scheduled to release August Existing Home Sales on Thursday, September 19th at 10 AM ET. The consensus is for 3.85 million SAAR, down from 3.95 million in July.

There is more in the article.

by Calculated Risk on 9/17/2024 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 41, up from 39 last month. Any number below 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Sentiment Rises as Rates Fall but Affordability Challenges Persist

With mortgage rates declining by more than one-half of a percentage point from early August through mid-September, per Freddie Mac, builder sentiment edged higher this month even as builders continue to grapple with rising costs.

Builder confidence in the market for newly built single-family homes was 41 in September, up two points from a reading of 39 in August, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This breaks a string of four consecutive monthly declines.

“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”

“With inflation moderating, the Federal Reserve is expected to begin a cycle of monetary policy easing this week, which will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans,” said NAHB Chief Economist Robert Dietz. “Lowering the cost of construction is critical to confront persistent challenges for housing affordability.”

The latest HMI survey also revealed that the share of builders cutting prices dropped in September for the first time since April, down one point to 32%. Moreover, the average price reduction was 5%, the first time it has been below 6% since July 2022. Meanwhile, the use of sales incentives fell to 61% in September, down from 64% in August.
...
ll three HMI indices were up in September. The index charting current sales conditions rose one point to 45, the component measuring sales expectations in the next six months increased four points to 53 and the gauge charting traffic of prospective buyers posted a two-point gain to 27.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points to 49, the Midwest edged one-point higher to 40, the South decreased one point to 41 and the West increased two points to 39.
emphasis added

Click on graph for larger image.

This graph shows the NAHB index since Jan 1985.

This was slightly above the consensus forecast.

by Calculated Risk on 9/17/2024 09:15:00 AM

From the Fed: Industrial Production and Capacity Utilization

In August, industrial production rose 0.8 percent after falling 0.9 percent in July. Similarly, the output of manufacturing increased 0.9 percent in August after decreasing 0.7 percent during the previous month. This pattern was due in part to a recovery in the index of motor vehicles and parts, which jumped nearly 10 percent in August after dropping roughly 9 percent in July. The index for manufacturing excluding motor vehicles and parts moved up 0.3 percent in August. The index for mining climbed 0.8 percent, while the index for utilities was flat. At 103.1 percent of its 2017 average, total industrial production in August was the same as its year-earlier level. Capacity utilization moved up to 78.0 percent in August, a rate that is 1.7 percentage points below its long-run (1972–2023) average
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.0% is 1.7% below the average from 1972 to 2022.  This was above consensus expectations.

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

The second graph shows industrial production since 1967.

Industrial production increased to 103.1. This is above the pre-pandemic level.

Industrial production was above consensus expectations.

by Calculated Risk on 9/17/2024 08:30:00 AM

On a monthly basis, retail sales increased 0.1% from July to August (seasonally adjusted), and sales were up 2.1 percent from August 2023.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for August 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $710.8 billion, an increase of 0.1 percent from the previous month, and up 2.1 percent from August 2023. ... The June 2024 to July 2024 percent change was revised from up 1.0 percent to up 1.1 percent.
emphasis added

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline was up 0.1% in August.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by 3.0% on a YoY basis.

The change in sales in August was slightly below expectations, however sales in June and July were revised up, combined.

by Calculated Risk on 9/16/2024 07:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Inch Lower to Begin Potentially Wild Week

The new week began on a relatively quiet note in terms of mortgage rate movement and the underlying bond market. ... Traders have quickly shifted back to expecting slightly better odds of a 0.50% rate cut versus the minimum 0.25%. That's not even the important part of the announcement, however. Markets will be more focused on the rate trajectory outlined in the Fed's economic projections as well as the guidance offered in the text of the announcement and Fed Chair Powell's press conference. ... Any time an outcome is guaranteed to surprise about half the market, it's pretty much impossible to avoid volatility. [30 year fixed 6.12%]
emphasis added

Tuesday:
• At 8:30 AM ET, Retail sales for August will be released.  The consensus is for a 0.2% increase in retail sales.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 77.9%.

• At 10:00 AM, The September NAHB homebuilder survey. The consensus is for a reading of 40, up from 39 in August. Any number below 50 indicates that more builders view sales conditions as poor than good.

by Calculated Risk on 9/16/2024 02:46:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-September 2024

A brief excerpt:

On Friday, in Part 1: Current State of the Housing Market; Overview for mid-September 2024 I reviewed home inventory, housing starts and sales.

In Part 2, I will look at house prices, mortgage rates, rents and more.
...
Other measures of house prices suggest prices will be up less YoY in the July Case-Shiller index than in the June report. The NAR reported median prices were up 4.2% YoY in July, up from 4.1% YoY in June.

ICE reported prices were up 3.6% YoY in July, down from 4.1% YoY in June, and Freddie Mac reported house prices were up 4.4% YoY in July, down from 5.2% YoY in June.

Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.

The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will likely be lower YoY in July compared to June.

There is much more in the article.

by Calculated Risk on 9/16/2024 01:06:00 PM

Back in June, I wrote: The Art of the Soft Landing

A few excerpts and an updated graph ...

The "Art of the Soft Landing" requires that the Fed reduce rates quick enough to keep economic growth positive, and slow enough not to reignite inflation.  My view is a soft landing is achieved if growth stays positive, inflation returns to target, and the yield curve flattens or reverts to normal (long yields higher than short yields).

The good news is growth has stayed positive and inflation has moved closer to the 2% target.  However, the yield curve is still inverted, and we are not out of the woods yet.

Here is an updated graph of 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity from FRED since 1976. 

The yield curve is no longer inverted.  The next 6 months or so will tell the tale if the Fed reduced rates quick enough to accomplish a soft landing.  That probably means the Fed Funds rate will need to be down to around 4% or so.

Click here for interactive graph at FRED.