by Calculated Risk on 12/10/2024 12:14:00 PM

Many years ago, I wrote: The upward slope of Real House Prices. I argued that real house prices (adjusted for inflation) had typically increased about 1.0% to 1.5% per year (much higher than Professor Shiller's estimate of 0.2%).

In 2012, housing economist Tom Lawler dug through some data and calculated that real prices increased 0.83% per year (See: Lawler: On the upward trend in Real House Prices)

In my previous posts, I tracked the bottom of real prices over time. This graph shows the peaks over time (the trend lines are 0.83% and 1.1%).

Click on graph for larger image.

This graph shows there have been four surges in real prices since the early '70s. One in the late '70s, one in the late '80s, one in the 00's (the housing bubble), and the recent surge in prices.

It is important to note that nationally nominal house prices did not decline following the surges in the '70s and '80s.  However, there were regional declines.

Since homeowners are concerned about nominal prices (not real prices), I wasn't concerned in December 2018, when Professor Shiller wrote in the NY Times: The Housing Boom Is Already Gigantic. How Long Can It Last?

Here were my comments on Shiller's article in 2018:

During the housing bubble, the difference between a slight upward slope in real prices (0.2% per year according to Shiller's index) and a slightly larger increase in real prices using other indexes (probably between 1% and 1.5% per year) didn't make any difference; there was obviously a huge bubble in house prices. But when comparing price "booms" over time, there is a huge difference.

If we use 1.5% per year for real price increases, the current "boom" in prices would be the fourth largest since the 1970s (and only about half the size of the late '70s and late '80s price boom), and if we use a 1.0% real increase, the current "boom" is on the same order as the late '70s and '80s price booms.

No big deal, and definitely not a "gigantic" boom in house prices.

Since I wrote that post in 2018, house prices have increased 57% nationally (from November 2018 to September 2024) according to the Case-Shiller index.   Real prices are up 26% during that same period.

I wouldn't call this a "bubble" because of the lack of both speculation and loose lending.  However, I'd argue house prices are too high based on historical real prices. Prices are also too high based on price-to-rent measures, and price-to-income.

by Calculated Risk on 12/10/2024 09:07:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Part 1: Current State of the Housing Market; Overview for mid-December 2024

A brief excerpt:

This 2-part overview for mid-December provides a snapshot of the current housing market.

I always focus first on inventory, since inventory usually tells the tale! I’m watching months-of-supply closely.
...
New home inventory, as a percentage of total inventory, is still very high. The following graph uses Not Seasonally Adjusted (NSA) existing home inventory from the National Association of Realtors® (NAR) and new home inventory from the Census Bureau (only completed and under construction inventory).

It took a number of years following the housing bust for new home inventory to return to the pre-bubble percent of total inventory. Then, with the pandemic, existing home inventory collapsed and now the percent of new homes is 21.6% of the total for sale inventory, down from a peak of 27.2% in December 2022.

The percent of new homes of total inventory should continue to decline as existing home inventory increases. However, the percent of new home inventory will increase seasonally over the Winter as existing homes are withdrawn from the market.

There is much more in the article.

by Calculated Risk on 12/09/2024 08:51:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Higher to Start New Week

Mortgage rates ended last week with an impressive drop to the lowest levels in more than a month and a half. Today's rates ended up being the 2nd lowest over that time after the average lender moved to just slightly higher levels to start the new new week.
...
In terms of economic reports, Wednesday's Consumer Price Index (CPI) has the most potential to cause volatility, for better or worse. [30 year fixed 6.72%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for November.

by Calculated Risk on 12/09/2024 02:15:00 PM

From Dodge Data Analytics: Dodge Momentum Index Slides 2% in November

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, decreased 2.3% in November to 191.5 (2000=100) from the revised October reading of 196.0. Over the month, commercial planning fell 4.6% while institutional planning improved 2.5%.

“Throughout 2024, we’ve seen robust growth in nonresidential planning activity – but labor shortages and high construction costs have prevented those projects from moving through the planning process at a normal pace. The current backlog may be constraining demand for commercial planning in the short-term,” stated Sarah Martin, associate director of forecasting at Dodge Construction Network. “Uncertainty over new tariff and immigration policies under president-elect Trump’s administration may also be generating some pause with developers, although it’s a bit too early to tell if that’s the primary factor here. Overall, easing monetary policy will help alleviate the backlog of projects in the planning queue throughout 2025 and spur more demand for projects in the coming months.”

On the commercial side, slower data center, office, warehouse and retail planning drove much of this month’s decline, while strong growth in education planning informed much of the growth on the institutional side. The institutional portion of the DMI has grown in 5 of the last 6 months.

In November, the DMI was 12% higher than year-ago levels. The commercial segment was up 13% from November 2023, while the institutional segment was up 8% over the same period. The influence of data centers on the DMI this year has been substantial. If we remove all data center projects in 2023 and 2024, commercial planning would be down 6% from year-ago levels, and the entire DMI would be down 1%.
...
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 191.5 in November, down from 196.0 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 12/09/2024 10:57:00 AM

Today, in the Real Estate Newsletter: ICE Mortgage Monitor: Refinance Activity Increased Especially for Rate/Term Refinances

Brief excerpt:

When mortgage rates declined in September and October, there was a surge in refinance activity, especially in rate/term refinances by homeowners with mortgage rates in the 7%+ range.

• More than 300K borrowers closed on refinances in September and October, including nearly 150K rate/term refinances
...
• Refinances out of 2023 and 2024 vintages drove 78% of rate/term lending, and nearly half of refinance activity overall

There is much more in the newsletter.

by Calculated Risk on 12/09/2024 08:11:00 AM

Altos reports that active single-family inventory was down 2.3% week-over-week.  Inventory is now 6.7% below the peak for the year (7 weeks ago).

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 26.2% compared to the same week in 2023 (last week it was up 27.1%), and down 16.8% compared to the same week in 2019 (last week it was down 17.2%). 

Back in June 2023, inventory was down almost 54% compared to 2019, so the gap to more normal inventory levels is closing!

This second inventory graph is courtesy of Altos Research.

As of Dec 6th, inventory was at 690 thousand (7-day average), compared to 707 thousand the prior week. 

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 12/08/2024 06:21:00 PM

Weekend:
• Schedule for Week of December 8, 2024

Monday:
• No major economic releases scheduled.

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

Oil prices were down over the last week with WTI futures at $67.14 per barrel and Brent at $71.06 per barrel. A year ago, WTI was at $71, and Brent was at $76 - so WTI oil prices are down about 5% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.97 per gallon. A year ago, prices were at $3.15 per gallon, so gasoline prices are down $0.18 year-over-year.

by Calculated Risk on 12/08/2024 08:21:00 AM

From CoreLogic: CoreLogic: US Homeowners See Equity Gains Drop by More Than 5 Percent in Q3

CoreLogic® ... today released the Homeowner Equity Report (HER) for the third quarter of 2024. The report shows that U.S. homeowners with mortgages (which account for roughly 62% of all properties) saw home equity increase by $425 billion since the third quarter of 2023, a gain of 2.5% year over year, bringing the total net homeowner equity to over $17.5 trillion in the third quarter of 2024.

For the first time since the fourth quarter of 2022, the share of negative equity rose in the U.S. on a quarterly basis. Just compared to last quarter, the number of residential properties that fell into negative equity increased by 30,000 homes or 1.8%.
...
“As home prices flattened in the third quarter, home equity gains also slowed, even declined in some regions of the country,” said Dr. Selma Hepp, CoreLogic Chief Economist. “While home equity closely depends on home price changes, equity losses are also tied to natural disaster events since households can lose a lot of their equity following a catastrophe, particularly if not property insured. As a result, following Maui’s 2023 devastating wildfire, Hawaii now tops the list with largest decline in home equity.”

From the report:

In the third quarter of 2024, the total number of mortgaged residential properties with negative equity increased by 3.5% from the second quarter of 2024, to currently about 990,000 homes with negative equity, or 1.8% of all mortgaged properties. On a year-over-year basis, negative equity declined by 3%, or about 30,000 fewer homes in negative equity from the third quarter of 2023.

This map from the report shows the percent of mortgaged homes with negative equity by state.

by Calculated Risk on 12/07/2024 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• Inflation Adjusted House Prices 1.4% Below 2022 Peak

• 1st Look at Local Housing Markets in November

• Freddie Mac House Price Index Increased in October; Up 3.7% Year-over-year

• FHFA Announces Baseline Conforming Loan Limit Will Increase to $806,500

• Asking Rents Mostly Unchanged Year-over-year

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

by Calculated Risk on 12/07/2024 08:11:00 AM

The key economic report this week is November CPI.

----- Monday, December 9th -----
No major economic releases scheduled.

----- Tuesday, December 10th -----
6:00 AM: NFIB Small Business Optimism Index for November.

----- Wednesday, December 11th -----
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 November from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.3% increase in core CPI.  The consensus is for CPI to be up 2.7% year-over-year and core CPI to be up 3.3% YoY.

----- Thursday, December 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 227 thousand initial claims, up from 224 thousand last week.

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

12:00 PM: Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Friday, December 13th -----
No major economic releases scheduled.