by Calculated Risk on 11/11/2024 02:28:00 PM

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

A brief excerpt:

Both inventory and sales are well below pre-pandemic 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 any time soon - however, as expected, months-of-supply is above 2019 levels.

Months-of-supply was at 4.3 months in September compared to 4.0 months in September 2019. Even though inventory has declined significantly compared to 2019, sales have fallen even more - pushing up months-of-supply.

The following graph shows months-of-supply since 2017. Note that months-of-supply is higher than the last 5 years (2019 - 2023), and just below the level in September 2018. Months-of-supply was at 4.2 in September 2017 and 4.4 in September 2018. In 2020 (black), months-of-supply increased at the beginning of the pandemic and then declined sharply.

There is much more in the article.

by Calculated Risk on 11/11/2024 11:53:00 AM

After the election in November 2016, I pointed out that the economy was solid, that there were significant economic tailwinds and that it was unlikely that Mr. Trump would do everything he said during the campaign (emphasis added). See: The Future is still Bright! and The Cupboard is Full. I was pretty optimistic on the economic outlook!

By early 2019, I was becoming more concerned: "So far Mr. Trump has had a limited negative impact on the economy. ... Fortunately the cupboard was full when Trump took office, and luckily there hasn't been a significant crisis".  Unfortunately, the COVID crisis struck in early 2020 and Trump performed poorly.

Once again, the economy is in good shape (last week Fed Chair Powell called the economy "remarkable"), and it is unlikely Mr. Trump will do most of what he said during the campaign.  For example, he promised no taxes on tips or overtime, the return of $2 gasoline, repealing and replacing the ACA, and deporting 20+ million people.  All of that is unlikely.  There are many other proposals, such as revamping the Federal workforce and dramatically cutting the Federal budget, that are unclear.

Trump will likely renew the tax cuts for the wealthy, increase tariffs - especially on imports from China - limit legal immigration (Trump said the "Country is full"), and increase deportations (but not anywhere close to the 20 million he said during the campaign).  Note: I don't expect any tariffs on Canada and Mexico.

However, the economic tailwinds are more limited in 2024 than in 2016, so the margin for error is smaller.

For example, in 2016, I was positive on housing starts and new home sales.  

Click on graph for larger image.

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

The black arrow points to the election in 2016, and I was projecting further increases in housing starts.

It now seems likely that housing starts will move more sideways.

Also, in 2016, demographics were improving, and the largest cohort in US history was moving into their peak earning years.  Now, demographics are more neutral, and possibly even negative if legal immigration is limited.

Also, I don't expect any progress over the next four years on key long-term economic issues like climate change and income / wealth inequality (that will likely get worse).

Since Trump's policies will not be evidence based (he rejects data that doesn't fit his views), I expect generally bad results. However - as in his previous term - bad policies might mean higher deficits with little return - not an economic downturn. Until we see the actual policy proposals, it is hard to predict the impact. I will write more as policies are enacted.  However, I'm not sanguine.

by Calculated Risk on 11/11/2024 08:11:00 AM

Altos reports that active single-family inventory was down 1.9% week-over-week. 

Inventory will now decline seasonally until early next year.

The first graph shows the seasonal pattern for active single-family inventory since 2015.

Click on graph for larger image.

The red line is for 2024.  The black line is for 2019.  

Inventory was up 27.3% compared to the same week in 2023 (last week it was up 29.8%), and down 19.2% compared to the same week in 2019 (last week it was down 19.4%). 

Back in June 2023, inventory was down almost 54% compared to 2019, so the gap to more normal inventory levels is almost two-thirds closed.

This second inventory graph is courtesy of Altos Research.

As of Nov 8th, inventory was at 722 thousand (7-day average), compared to 736 thousand the prior week. 

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 11/10/2024 07:35:00 PM

Weekend:
• Schedule for Week of November 10, 2024

Monday:
• Veterans Day Holiday: Most banks will be closed in observance of Veterans Day. The stock market will be open.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 are up 12 and DOW futures are up 45 (fair value).

Oil prices were up over the last week with WTI futures at $70.28 per barrel and Brent at $73.83 per barrel. A year ago, WTI was at $76, and Brent was at $84 - so WTI oil prices are down about 8% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.04 per gallon. A year ago, prices were at $3.36 per gallon, so gasoline prices are down $0.32 year-over-year.

by Calculated Risk on 11/10/2024 09:58:00 AM

From Dodge Data Analytics: Dodge Momentum Index Retreats 5% in October

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, decreased 5.3% in October to 197.2 (2000=100) from the revised September reading of 208.2. Over the month, commercial planning fell 6.7% and institutional planning declined 2.0%.

“In addition to data center planning normalizing, a moderate pullback in the number of planning projects for several other nonresidential sectors also contributed to the decline in the Dodge Momentum Index for October,” stated Sarah Martin, associate director of forecasting at Dodge Construction Network. “Regardless, owners and developers remain confident in next year’s market conditions and the planning queue remains poised to spur stronger construction activity in 2025, following deeper rate cuts by the Fed.”

Most commercial categories faced declines throughout October, aside from hotel planning – which continued to gain momentum. On the institutional side, education and public planning activity expanded, offset by weaker activity in healthcare, recreational and religious projects. This month, the DMI was 13% higher than in October of 2023. The commercial segment was up 18% from year-ago levels, while the institutional segment was up 3% over the same period. The influence of data centers on the DMI this year has been substantial. If we remove all data center projects from January to October, commercial planning would be down 4% from year-ago levels, and the entire DMI would be down 2%.
...
The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 197.2 in October, down from 208.2 the previous month.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggests a slowdown in early 2025, but a pickup in mid-2025.  

Commercial construction is typically a lagging economic indicator.

by Calculated Risk on 11/09/2024 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• In Q2, almost 20% of Units Started Built-for-Rent were Single Family

• MBA: Mortgage Delinquencies Decreased Slightly in Q3 2024

• 1st Look at Local Housing Markets in October First Year-over-year Sales Gain Since August 2021

• Asking Rents Mostly Unchanged Year-over-year

• ICE Mortgage Monitor: "Annual home price growth cooled for the seventh consecutive month"

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

by Calculated Risk on 11/09/2024 08:11:00 AM

The key economic reports this week are October CPI and Retail Sales.

For manufacturing, October industrial production and the November New York Fed survey will be released this week.

----- Monday, November 11th -----
Veterans Day Holiday: Most banks will be closed in observance of Veterans Day. The stock market will be open.

----- Tuesday, November 12th -----
6:00 AM: NFIB Small Business Optimism Index for October.

2:00 PM: Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) for October.

----- Wednesday, November 13th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The Consumer Price Index for October from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.3% increase in core CPI.  The consensus is for CPI to be up 2.6% year-over-year and core CPI to be up 3.3% YoY.

11:00 AM: NY Fed: Q3 Quarterly Report on Household Debt and Credit

----- Thursday, November 14th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 255 thousand initial claims, up from 221 thousand last week.

8:30 AM: The Producer Price Index for October from the BLS. The consensus is for a 0.3% increase in PPI, and a 0.2% increase in core PPI.

3:00 PM: Speech, Fed Chair Jerome Powell, Economic Outlook, At Conversation with Federal Reserve Chair Jerome Powell, Dallas, Texas

----- Friday, November 15th -----
8:30 AM ET: Retail sales for October will be released.

The consensus is for a 0.3% increase in retail sales.

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

8:30 AM: The New York Fed Empire State manufacturing survey for November. The consensus is for a reading of 3.5, up from -11.9.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for October.

This graph shows industrial production since 1967.

The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.3%.

by Calculated Risk on 11/08/2024 07:02:00 PM

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

For deaths, I'm currently using 4 weeks ago for "now", since the most recent three weeks will be revised significantly.

Note: "Effective May 1, 2024, hospitals are no longer required to report COVID-19 hospital admissions, hospital capacity, or hospital occupancy data."  So I'm no longer tracking hospitalizations.

COVID Metrics
	Now	Week Ago	Goal
Deaths per Week	759	935	≤3501
1my goals to stop weekly posts, 🚩 Increasing number weekly for Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the weekly (columns) number of deaths reported.

Although weekly deaths met the original goal to stop posting, I'm continuing to post now that deaths are above the goal again.  

Weekly deaths are now declining and will likely continue to decline based on wastewater sampling but are still more than double the low of 302 in early June.

And here is a graph I'm following concerning COVID in wastewater as of November 7th:

This appears to be a leading indicator for COVID hospitalizations and deaths.

COVID in wastewater is fairly low - only about 50% higher than the lows of last May - suggesting weekly deaths will continue to decline.

by Calculated Risk on 11/08/2024 02:11:00 PM

From STR: U.S. hotel results for week ending 2 November

The U.S. hotel industry reported positive year-over-year comparisons, according to CoStar’s latest data through 19 October. ...

27 October through 2 November 2024 (percentage change from comparable week in 2023):

• Occupancy: 60.8% (+1.9%)
• Average daily rate (ADR): US$154.99 (+1.2%)
• Revenue per available room (RevPAR): US$94.22 (+3.1%)
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 above both last year and the median rate for the period 2000 through 2023 (Blue) - and finishing the year strong!

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

The 4-week average of the occupancy rate has peaked for the fall business travel season and will decline seasonally through the holidays.

by Calculated Risk on 11/08/2024 11:35:00 AM

Fed Chair Powell, Nov 7, 2024:

"It's actually remarkable how strong the U.S. economy is performing. We're performing better than all of our global peers. Ultimately, if you look at the U.S. economy, its performance has been very good."

From BofA:

Next week, we will initiate our 4Q GDP tracker with the October retail sales print and Oct industrial production and Sep business inventories. [Current forecast 2.0%, Nov 8th]
emphasis added

From Goldman:

We left our Q4 GDP tracking estimate unchanged at +2.6% (quarter-over-quarter annualized) and our Q4 domestic final sales forecast unchanged at +2.0% [Nov 5th estimate]

And from the Atlanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 2.5 percent on November 7, up from 2.4 percent on November 5. [Nov 7th estimate]