by Calculated Risk on 12/30/2024 08:11:00 AM

Altos reports that active single-family inventory was down 2.5% week-over-week.

Inventory will continue to decline seasonally until early next year and probably bottom in late January or February.

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 26.8% compared to the same week in 2023 (last week it was up 26.3%), and down 16.8% compared to the same week in 2019 (last week it was down 16.9%). 

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

This second inventory graph is courtesy of Altos Research.

As of Dec 27th, inventory was at 651 thousand (7-day average), compared to 667 thousand the prior week. 

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 12/29/2024 07:18:00 PM

Weekend:
• Schedule for Week of December 29, 2024

Monday:
• At 9:45 AM, Chicago Purchasing Managers Index for December.

• At 10:00 AM, Pending Home Sales Index for November. The consensus is for a 0.7% increase in the index.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for December. This is the last of regional manufacturing surveys for December.

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

Oil prices were up over the last week with WTI futures at $70.43 per barrel and Brent at $73.80 per barrel. A year ago, WTI was at $72, and Brent was at $78 - so WTI oil prices are down slighty year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.98 per gallon. A year ago, prices were at $3.11 per gallon, so gasoline prices are down $0.13 year-over-year.

by Calculated Risk on 12/29/2024 10:11:00 AM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2025. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2024.

6) Monetary Policy: The FOMC cut the federal funds rate four times in 2024 from "5-1/4 to 5-1/2 percent" at the beginning of 2024, to "4-1/4 to 4-1/2" at the end of the year. Most FOMC participants expect around two 25 bp rate cuts in 2025. What will the Fed Funds rate be in December 2025?

As of December, looking at the "dot plot", the FOMC participants see the following number of rate cuts in 2025:

25 bp Rate Cuts	FOMC Members 2025
No Change	1
One Rate Cut	3
Two Rate Cuts	10
Three Rate Cuts	3
Four Rate Cuts	1
More than Four	1

The main view of the FOMC is for two rate cuts in 2025.

Goldman Sachs economists still think there will be 3 rate cuts in 2025:

"The bond market took the meeting as hawkish and is now pricing just 32bp of cuts in 2025, down from 50bp yesterday, and broader financial conditions tightened substantially. We left our more dovish forecast of three more cuts in March, June, and September 2025 unchanged, though we acknowledge that better inflation news or worse employment news will be needed for a March cut."

A key question: Is current policy restrictive (as Fed Chair Powell has said)?  With core PCE inflation at 2.8% year-over-year in November and the "neutral rate" at 2%+ would suggest a Fed Funds Rate at around 4.75% to 5.0% (Of course, estimates of the neutral rate vary widely).  

Currently the target Fed Funds rate range is '4-1/4 to 4-1/2' percent.  And the FOMC projections show core PCE inflation only declining to 2.5% to 2.7% by the end of 2025 (Q4-over-Q4).

However, the FOMC believes inflation will come down, partially because of an expected decline in housing inflation.   Asking rents have been flat for almost two years, and measures of rent (housing / shelter) are slowly declining.

If we look at recent readings over the last 6 months annualized (through November):

PCE Price Index: 2.1% 

Core PCE Prices: 2.5%

Core minus Housing: 2.3%

Also, in Q1 2024, PCE inflation was very high.  There might be some residual seasonality in Q1, however, it seems likely inflation will be lower in Q1 2025, lowering the YoY measures.

The next FOMC meeting ends on January 29th, and the FOMC will likely hold rates steady at that meeting.   The FOMC might cut rates in March if inflation readings for January are favorable.

With inflation still above target over the last 6 months, my guess is there will be 1 or 2 rate cuts in 2025.

I also expect the FOMC to slow balance sheet runoff in 2025. 

FOMC policy will depend on what happens with inflation and employment in 2025.  

Here are the Ten Economic Questions for 2025 and a few predictions:

• Question #1 for 2025: How much will the economy grow in 2025? Will there be a recession in 2025?

• Question #2 for 2025: How much will job growth slow in 2025? Or will the economy lose jobs?

• Question #3 for 2025: What will the unemployment rate be in December 2025?

• Question #4 for 2025: What will the participation rate be in December 2025?

• Question #5 for 2025: What will the YoY core inflation rate be in December 2025?

• Question #6 for 2025: What will the Fed Funds rate be in December 2025?

• Question #7 for 2025: How much will wages increase in 2025?

• Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

• Question #9 for 2025: What will happen with house prices in 2025?

• Question #10 for 2025: Will inventory increase further in 2025?

by Calculated Risk on 12/28/2024 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• New Home Sales Increase to 664,000 Annual Rate in November

• FHFA’s National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

• Lawler: New Census Population Estimates Show Massively Higher Population Growth

• Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

• Question #9 for 2025: What will happen with house prices in 2025?

• Question #10 for 2025: Will inventory increase further in 2025?

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

by Calculated Risk on 12/28/2024 08:11:00 AM

Happy New Year! Wishing you all the best in 2025.

The key reports this week are the October Case-Shiller house price indexes, the December ISM manufacturing survey and December vehicle sales.

----- Monday, December 30th -----
9:45 AM: Chicago Purchasing Managers Index for December.

10:00 AM: Pending Home Sales Index for November. The consensus is for a 0.7% increase in the index.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for December. This is the last of regional manufacturing surveys for December.

----- Tuesday, December 31st -----
9:00 AM: FHFA House Price Index for October. This was originally a GSE only repeat sales, however there is also an expanded index. 

9:00 AM ET: S&P/Case-Shiller House Price Index for October.

This graph shows graph shows the Year over year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

The consensus is for an 4.1% year-over-year increase in the Composite 20 index for October.

----- Wednesday, January 1st -----
The NYSE and the NASDAQ will be closed in observance of the New Year’s Day holiday

----- Thursday, January 2nd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release two weeks of results for the mortgage purchase applications index.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 223 thousand from 219 thousand last week.

10:00 AM: Construction Spending for November. The consensus is for a 0.3% increase in construction spending.

----- Friday, January 3rd -----
10:00 AM: ISM Manufacturing Index for December. The consensus is for the ISM to be at 48.3, down from 48.4 in November.

All day: Light vehicle sales for December.

The Wards forecast is for 16.7 million SAAR in December, up from the BEA estimate of 16.50 million SAAR in November (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967.  The dashed line is the current sales rate.

by Calculated Risk on 12/27/2024 07:11:00 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🚩	451	438	≤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 - and at a minimum, I'll continue to post through the Winter.  

Weekly deaths had been declining but increased slightly this week (no surprise given the sharp increase in wastewater testing results).  Weekly deaths are still above the low of 313 in early June 2024.

And here is a graph I'm following concerning COVID in wastewater as of December 26th:

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

COVID in wastewater is "HIGH" according to the CDC - and more than double the lows of last May - and increasing sharply.  Something to watch.

by Calculated Risk on 12/27/2024 11:21:00 AM

Today, in the Calculated Risk Real Estate Newsletter: FHFA’s National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

A brief excerpt:

Here are some graphs on outstanding mortgages by interest rate, the average mortgage interest rate, borrowers’ credit scores and current loan-to-value (LTV) from the FHFA’s National Mortgage Database through Q3 2024 (just released).
...
Here is some data showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2024.

This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. The percent of outstanding loans under 4% peaked in Q1 2022 at 65.1% (now at 55.2%), and the percent under 5% peaked at 85.6% (now at 73.3%). These low existing mortgage rates makes it difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply. This is a key reason existing home inventory levels are so low.

There is much more in the article.

by Calculated Risk on 12/27/2024 10:40:00 AM

From Goldman:

We lowered our Q4 GDP tracking estimate by 0.1pp to +2.3% (quarter-over-quarter annualized). Our Q4 domestic final sales forecast stands at +2.3% (quarter-over-quarter annualized). [Dec 27th estimate]
emphasis added

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 3.1 percent on December 24, unchanged from December 20 after rounding. After both the advance durable manufacturing report and the new home sales release from the US Census Bureau, the nowcast of fourth-quarter real gross private domestic investment growth increased from 1.2 percent to 1.3 percent. [Dec 24th estimate]

by Calculated Risk on 12/27/2024 08:11:00 AM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2025. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2024.

7) Wage Growth: Wage growth was solid in 2024, up 4.0% year-over-year as of November. How much will wages increase in 2025?

The most followed wage indicator is the “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report.

Click on graph for larger image.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Real wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 4.0% YoY in November 2024. Although wage growth was above expectations in November, the trend is clearly down.

There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).

The second graph is from the Atlanta Fed Wage Tracker.   This measure is the year-over-year change in nominal wages for individuals.

By following wage changes for individuals, this removes the demographic composition effects (older workers who are retiring tend to be higher paid, and younger workers just entering the workforce tend to be lower paid).

The Atlanta Fed Wage tracker showed nominal wage growth increased sharply in 2021 and for most of 2022.   In November 2024, the smoothed 3-month average wage growth was at 4.3% year-over-year, down from a peak of 6.7% in July 2022.

Clearly wage growth is slowing and I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker.  My sense is nominal wages will increase close to mid-to-high 3% range YoY in 2025 according to the CES.  Update 1/1/2025: It is possible that wage growth will increase with a falling participation rate and slower population growth. 

Here are the Ten Economic Questions for 2025 and a few predictions:

• Question #1 for 2025: How much will the economy grow in 2025? Will there be a recession in 2025?

• Question #2 for 2025: How much will job growth slow in 2025? Or will the economy lose jobs?

• Question #3 for 2025: What will the unemployment rate be in December 2025?

• Question #4 for 2025: What will the participation rate be in December 2025?

• Question #5 for 2025: What will the YoY core inflation rate be in December 2025?

• Question #6 for 2025: What will the Fed Funds rate be in December 2025?

• Question #7 for 2025: How much will wages increase in 2025?

• Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

• Question #9 for 2025: What will happen with house prices in 2025?

• Question #10 for 2025: Will inventory increase further in 2025?

by Calculated Risk on 12/26/2024 05:02:00 PM

Today, in the CalculatedRisk Real Estate Newsletter: Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

Excerpt:

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2025. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in this newsletter (others like GDP and employment will be on my blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2024.

8) Residential Investment: Residential investment (RI) was slightly positive through the first three quarters of 2024. Through November, starts were down 4.3% year-to-date compared to the same period in 2023 (due to a sharp decline in multi-family starts). New home sales were up 2.1% year-to-date through October. Note: RI is mostly investment in new single-family structures, multifamily structures, home improvement and commissions on existing home sales. How much will RI change in 2025? How about housing starts and new home sales in 2025?
...
Here is a table showing single and multi-family housing starts and new home sales since 2000. Note that single family starts, and new home sales declined sharply for several years following the housing bubble. The dynamics in this cycle are very different, and there will not be significant distressed sales in this cycle. Also new home sales were not as elevated prior to the downturn, so the decline wasn’t as sharp.

The decline in single-family starts and new home sales was not as severe or persistent as during the housing bust. Multi-family starts have been down significantly for two straight years.

There is much more in the post.