by Calculated Risk on 2/24/2023 12:59:00 PM

From BofA:

Our GDP tracking estimate fell by two-tenths to 1.3% q/q saar since our last update [Feb 23rd estimate] (estimate before personal spending and New Home sales reports).
emphasis added

From Goldman:

Following stronger-than-expected personal spending and new home sales in January, we boosted our Q1 GDP tracking estimate by 0.4pp to +1.8% (qoq ar) and our domestic final sales forecast by the same amount to +2.3%. [Feb 24th estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 2.7 percent on February 24, up from 2.5 percent on February 16. After recent releases from the US Census Bureau, the US Bureau of Economic Analysis, the US Bureau of Labor Statistics, and the National Association of Realtors, the nowcasts of first-quarter real personal consumption expenditures growth and first-quarter real gross private domestic investment growth increased from 3.6 percent and -6.0 percent, respectively, to 3.8 percent and -5.3 percent. [Feb 24th estimate]

by Calculated Risk on 2/24/2023 10:50:00 AM

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales Increase to 670,000 Annual Rate in January

Brief excerpt:

And on prices, from the Census Bureau:

The median sales price of new houses sold in January 2023 was $427,500. The average sales price was $474,400.

The following graph shows the median and average new home prices. The average price in January 2023 was $474,400 down 5.3% year-over-year.  The median price was $427,500 down 0.7% year-over-year.   This suggests a year-over-year decrease in prices, although both the median and the average are impacted by the mix of homes sold.

...
This was for contracts signed in January when mortgage rates were lower - and builders were buying down rates. Mortgage rates increased again in February, and that will likely impact sales.

As previously discussed, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. So, take the headline sales number with a large grain of salt - the actual negative impact on the homebuilders is greater than the headline number suggests (until cancellations start declining)!

This will reverse when cancellation rates start declining. When a previously cancelled home is resold, the home builder counts it as a sale, but the Census Bureau does not (since it was already counted).

There are a large number of homes under construction, and this suggests we will see a further sharp increase in completed inventory over the next several months - and that will keep pressure on new home prices.

You can subscribe at https://calculatedrisk.substack.com/.

by Calculated Risk on 2/24/2023 10:07:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 670 thousand.

The previous three months were revised down, combined.

Sales of new single‐family houses in January 2023 were at a seasonally adjusted annual rate of 670,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.2 percent above the revised December rate of 625,000, but is 19.4 percent below the January 2022 estimate of 831,000.
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales are close to pre-pandemic levels.

The second graph shows New Home Months of Supply.

The months of supply decreased in January to 7.9 months from 8.7 months in December.

The all-time record high was 12.1 months of supply in January 2009. The all-time record low was 3.5 months, most recently in October 2020.

This is well above the top of the normal range (about 4 to 6 months of supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of January was 439,000. This represents a supply of 7.9 months at the current sales rate."

Sales were well above expectations of 620 thousand SAAR, however sales in the three previous months were revised down, combined. I'll have more later today.

by Calculated Risk on 2/24/2023 08:40:00 AM

The BEA released the Personal Income and Outlays report for January:

Personal income increased $131.1 billion (0.6 percent) in January, according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $387.4 billion (2.0 percent) and personal consumption expenditures (PCE) increased $312.5 billion (1.8 percent).

The PCE price index increased 0.6 percent in January. Excluding food and energy, the PCE price index also increased 0.6 percent. Real DPI increased 1.4 percent and Real PCE increased 1.1 percent; goods increased 2.2 percent and services increased 0.6 percent.
emphasis added

The January PCE price index increased 5.4 percent year-over-year (YoY), up from 5.3 percent YoY in December, and down from the recent peak of 7.0 percent in June 2022.

The PCE price index, excluding food and energy, increased 4.7 percent YoY, up from 4.6 percent in December, and down from the recent peak of 5.4 percent in February 2022.

The following graph shows real Personal Consumption Expenditures (PCE) through January 2023 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

Personal income was below expectations, and the increase in PCE was above expectations.

Inflation was above expectations.

by Calculated Risk on 2/23/2023 08:47:00 PM

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

Friday:
• At 8:30 AM ET, Personal Income and Outlays for January. The consensus is for a 0.9% increase in personal income, and for a 1.3% increase in personal spending. And for the Core PCE price index to increase 0.4%.  PCE prices are expected to be up 4.9% YoY, and core PCE prices up 4.3% YoY.

• At 10:00 AM, New Home Sales for January from the Census Bureau. The consensus is that new home sales increased to 620 thousand SAAR, down from 616 thousand in December.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (Final for February). The consensus is for a reading of 66.4.

by Calculated Risk on 2/23/2023 02:57:00 PM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report released today from economist Jiayi Xu: Weekly Housing Trends View — Data Week Ending Feb 18, 2023

• Active inventory growth continued to climb with for-sale homes up 67% above one year ago. Inventories of for-sale homes rose again, on par with the yearly gains we saw last week. With new listings declining, the growing number of homes for sale reflects still-low buyer interest amid high costs rather than an influx of sellers is driving this increase. Even after these huge gains, January data show that nationwide there are still more than 40% fewer homes for sale than were available pre-pandemic, helping to explain why neither sellers nor buyers feel particularly excited about this current housing market.
...
• New listings–a measure of sellers putting homes up for sale–were again down, this week by 18% from one year ago. . For 33 weeks now, fewer homeowners put their homes on the market for sale than at this time last year. After smaller declines in the first few weeks of the year, the gap has widened for a fourth week, indicating lower seller interest than we saw one year ago.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory is still up sharply year-over-year; however, the increase has slowed recently.

by Calculated Risk on 2/23/2023 12:23:00 PM

From CoStar: STR: Weekly US Hotel Occupancy Eclipses 60%, the First Time Since Mid-November

U.S. hotel performance increased from the previous week, according to STR‘s latest data through Feb. 18.

Feb. 12-18, 2023 (percentage change from comparable week in 2019*):

• Occupancy: 60.8% (-5.5%)
• Average daily rate (ADR): $156.10 (+19.5%)
• Revenue per available room (RevPAR): $94.94 (+12.9%)

*Due to the pandemic impact, STR is measuring recovery against comparable time periods from 2019. Year-over-year comparisons will once again become standard after the first quarter.
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 2023, black is 2020, blue is the median, and dashed light blue is for 2022.  Dashed purple is 2019 (STR is comparing to a strong year for hotels).

The 4-week average of the occupancy rate is close to the median rate for the previous 20 years (Blue).

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

The 4-week average of the occupancy rate will increase seasonally for several more weeks.

by Calculated Risk on 2/23/2023 08:42:00 AM

From the BEA: Gross Domestic Product, Fourth Quarter and Year 2022 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.7 percent in the fourth quarter of 2022, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.9 percent. The updated estimates primarily reflected a downward revision to consumer spending that was partly offset by an upward revision to nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, were revised up.
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 2.1% to 1.4%. Residential investment was revised up from -26.7% to -25.9%.

by Calculated Risk on 2/23/2023 08:34:00 AM

The DOL reported:

In the week ending February 18, the advance figure for seasonally adjusted initial claims was 192,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 194,000 to 195,000. The 4-week moving average was 191,250, an increase of 1,500 from the previous week's revised average. The previous week's average was revised up by 250 from 189,500 to 189,750.
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 191,250.

The previous week was revised up.

Weekly claims were below the consensus forecast.

by Calculated Risk on 2/22/2023 09:01:00 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 200 thousand initial claims, up from 194 thousand last week.

• Also at 8:30 AM, Gross Domestic Product, 4th quarter 2022 (Second estimate). The consensus is that real GDP increased 2.9% annualized in Q4, unchanged from the advance estimate of 2.9%.

• Alsot at 8:30 AM, Chicago Fed National Activity Index for January. This is a composite index of other data.

• At 11:00 AM, the Kansas City Fed manufacturing survey for February.

by Calculated Risk on 2/22/2023 05:38:00 PM

From WardsAuto: U.S. Light-Vehicle Sales, Inventory Continue Upward Climb in February (pay content).  Brief excerpt:

With inventory expected to record big gains by the end of the first quarter, consumers could be on the verge of seeing an easing up in pricing through a combination of greater availability of more affordable vehicles and increased incentives, especially when the industry gets into the spring selling season.
emphasis added

Click on graph for larger image.

This graph shows actual sales from the BEA (Blue), and Wards forecast for February (Red).

The Wards forecast of 14.6 million SAAR, would be down 7% from last month, and up 6.5% from a year ago.

Vehicle sales are usually a transmission mechanism for Federal Open Market Committee (FOMC) policy, far behind housing.  This time vehicle sales have been more suppressed by supply chain issues but have picked up recently.

by Calculated Risk on 2/22/2023 03:20:00 PM

From the Fed: Minutes of the Federal Open Market Committee, January 31–February 1, 2023. Excerpt:

In their consideration of appropriate monetary policy actions at this meeting, participants concurred that the Committee had made significant progress over the past year in moving toward a sufficiently restrictive stance of monetary policy. Even so, participants agreed that, while there were recent signs that the cumulative effect of the Committee's tightening of the stance of monetary policy had begun to moderate inflationary pressures, inflation remained well above the Committee's longer-run goal of 2 percent and the labor market remained very tight, contributing to continuing upward pressures on wages and prices. Against this backdrop, and in consideration of the lags with which monetary policy affects economic activity and inflation, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points at this meeting. Many of these participants observed that a further slowing in the pace of rate increases would better allow them to assess the economy's progress toward the Committee's goals of maximum employment and price stability as they determine the extent of future policy tightening that will be required to attain a stance that is sufficiently restrictive to achieve these goals. A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet.

In discussing the policy outlook, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, all participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. Participants affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. In determining the extent of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time.
emphasis added

by Calculated Risk on 2/22/2023 12:00:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architectural billings continue to contract in 2023

Fewer architecture firms report declining billings in January compared to billing activity in December, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for January was 49.3* compared to 48.4 in December (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from December to January, however, the pace of decline slowed. Inquiries into new projects during January grew, with a score of 55.2 compared to 52.6 in December. The value of new design contracts also reflected an easing in the pace of decline, rising to a score of 53.4 in January from 50.0 the previous month.

“While the downturn in design activity extended to four months in January, there are signs of easing,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “In particular, architecture firms reported that new project work has begun to increase, signifying that this decline in billings may reverse in the coming months.”
...
• Regional averages: Midwest (51.6); West (51.3); Northeast (50.9); South (46.9)

• Sector index breakdown: mixed practice (56.0); institutional (48.6); commercial/industrial (46.8); multi-family residential (45.9)

*Every January the AIA research department updates the seasonal factors used to calculate the ABI, resulting in a revision of recent ABI values.
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 49.3 in January, up from 48.4 in December. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

This index had been positive for 20 consecutive months but indicated a decline the last four months.   This index usually leads CRE investment by 9 to 12 months, so this index suggests a pickup in CRE investment in early 2023, but a slowdown in CRE investment later in 2023.

Note that multi-family billing turned down in September and has been negative for five consecutive months.   This suggests we will see a downturn in multi-family starts this year (multi-family starts probably have already peaked).

by Calculated Risk on 2/22/2023 09:45:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Final Look at Local Housing Markets in January

A brief excerpt:

The big story for January existing home sales was the sharp year-over-year (YoY) decline in sales. Also, active inventory increased sharply YoY, but is still historically low.

This is the final look at local markets in January. I’m tracking about 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I update these tables throughout each month as additional data is released

First, here is a table comparing the year-over-year Not Seasonally Adjusted (NSA) declines in sales this year from the National Association of Realtors® (NAR) with the local markets I track. So far, these measures have tracked closely. The NAR reported sales were down 34.4% NSA YoY in January.
...
More local data coming in February for activity in January!

Important: Closed sales in January were mostly for contracts signed in November and December. Mortgage rates, according to the Freddie Mac PMMS, decreased to around 6.4% in December and 6.3% in January, so that will likely provide a small boost to closed sales in February.

My early expectation is we will see a somewhat smaller YoY sales decline in February, than in January, due to the decrease in mortgage rates in December and January.

However, in the 2nd half of February, mortgage rates have spiked again, and the MBA purchase index fell to the lowest level since 1995!

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 2/22/2023 07:00:00 AM

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

Mortgage applications decreased 13.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 17, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 13.3 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 2 percent from the previous week and was 72 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 18 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 41 percent lower than the same week one year ago.

“Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62 percent – the highest rate since November 2022. The jump led to the purchase applications index decreasing 18 percent to its lowest level since 1995,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected. The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”

Added Kan, “Refinance applications declined last week and remained more than 70 percent behind last year’s pace. Given that rates are over 2.5 percentage points higher than a year ago, we expect that refinance activity will remain depressed for some time.”
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022.

Other than the lows in Q4 of 2022 and early this year, the refinance index was at the lowest level since the year 2000.

The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is down 41% year-over-year unadjusted.  

The purchase index is 19% below the pandemic low and at the lowest level since 1995!

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

by Calculated Risk on 2/21/2023 08:24:00 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.

• During the day, The AIA's Architecture Billings Index for January (a leading indicator for commercial real estate).

• At 2:00 PM, FOMC Minutes, Meeting of January 31-February 1, 2023

by Calculated Risk on 2/21/2023 04:00:00 PM

Note: This is as of January 31st.

From the MBA: Share of Mortgage Loans in Forbearance Decreases to 0.64% in January

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey revealed that the total number of loans now in forbearance decreased by 6 basis points from 0.70% of servicers’ portfolio volume in the prior month to 0.64% as of January 31, 2023. According to MBA’s estimate, 320,000 homeowners are in forbearance plans.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 1 basis point to 0.30%. Ginnie Mae loans in forbearance decreased 8 basis points to 1.37%, and the forbearance share for portfolio loans and private-label securities (PLS) decreased 17 basis points to 0.83%.

“The forbearance rate decreased across all investor types in January, as borrowers continued to recover from pandemic-related hardships,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “With the national emergency set to end on May 11 of this year, many borrowers will no longer have the option to initiate COVID-19-related forbearance. Mortgage forbearance in other forms – whether due to natural disasters or life events – will continue, albeit with different requirements and parameters.
emphasis added

Click on graph for larger image.

This graph shows the percent of portfolio in forbearance by investor type over time.

The share of forbearance plans has been generally decreasing.

At the end of January, there were about 320,000 homeowners in forbearance plans.

by Calculated Risk on 2/21/2023 02:17:00 PM

Earlier, in the CalculatedRisk Real Estate Newsletter on January existing home sales, NAR: Existing-Home Sales Decreased to 4.00 million SAAR in January, I mentioned that the median price was down more than normal seasonally.

Below is a table of the seasonal changes from annual peak to the following January over the last several years (all prices Not Seasonally Adjusted, NSA).

Seasonally prices typically peak in June (closed sales for contracts signed mostly in April and May).

And seasonally prices usually bottom the following January (contracts signed in November and December).

	2018	2019	2020	2021	2022
Peak Month	June	June	Oct	June	June
To following Jan	-8.9%	-6.7%	-3.0%	-3.4%	-13.2%

In 2020, prices increased late into the year and only declined slightly seasonally (the start of the pandemic buying boom), and in 2021, median prices only declined about 3% from peak to bottom.

But the decline from the 2022 peak to January 2023 of 13.2% is larger than in the pre-pandemic years. And we will probably see further price weaknesses, putting median prices down year-over-year soon.

Last year, closing median prices increased 2.7% in February, 4.3% in March, 4.3% in April and 3.3% in May, all NSA.

If median prices are up less than 1.3% month-to-month in February 2023, median prices will be down year-over-year!

by Calculated Risk on 2/21/2023 10:47:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Decreased to 4.00 million SAAR in January

Excerpt:

On prices, the NAR reported:

The median existing-home price3 for all housing types in January was $359,000, an increase of 1.3% from January 2022 ($354,300), as prices climbed in three out of four U.S. regions while falling in the West. This marks 131 consecutive months of year-over-year increases, the longest-running streak on record.

Median prices are distorted by the mix (repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices).

The YoY change in the median price peaked at 25.2% in May 2021 and has now slowed to 1.3%. Note that the median price usually starts falling seasonally in July, so the 2.0% decline in January in the median price was partially seasonal, however the 13.2% decline in the median price over the last seven months has been much larger than the usual seasonal decline.

It is likely the median price will be down year-over-year soon - and the Case-Shiller index will follow.

There is much more in the article.  You can subscribe at https://calculatedrisk.substack.com/ Please subscribe!

by Calculated Risk on 2/21/2023 10:15:00 AM

From the NAR: Existing-Home Sales Descended 0.7% in January

Existing-home sales fell for the twelfth straight month in January, according to the National Association of Realtors®. Month-over-month sales were mixed among the four major U.S. regions, as the South and West registered increases, while the East and Midwest experienced declines. All regions recorded year-over-year declines.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops – slid 0.7% from December 2022 to a seasonally adjusted annual rate of 4.00 million in January. Year-over-year, sales retreated 36.9% (down from 6.34 million in January 2022).
...
Total housing inventory registered at the end of January was 980,000 units, up 2.1% from December and 15.3% from one year ago (850,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, unchanged from December but up from 1.6 months in January 2022.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in January (4.00 million SAAR) were down 0.7% from the previous month and were 36.9% below the January 2022 sales rate.

Sales were just above the pandemic low of 4.01 million SAAR.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 0.99 million in January from 0.96 million in December.

Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was up 15.3% year-over-year (blue) in January compared to January 2022.

Months of supply (red) was unchanged at 2.9 months in January from 2.9 months in December.

This was below the consensus forecast. I'll have more later.