by Calculated Risk on 4/10/2023 09:09:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Have Quickly Erased Last Week's Drop

There was no new data behind today's move. Truly, it was as simple as the mortgage market getting caught up with the bond market (bonds ultimately dictate rate momentum).

The next big flashpoint will be Wednesday morning's Consumer Price Index (CPI)--the most important monthly inflation report, and oftentimes more important than the jobs report ... While there's no way to know if the report will be good or bad for rates, nothing else on this week's calendar has the potential to cause as much of a reaction. [30 year fixed 6.50%]
emphasis added

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

by Calculated Risk on 4/10/2023 03:01:00 PM

From Dodge Data Analytics: Dodge Momentum Index Drops in March

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, slipped 8.6% in March to 183.7 (2000=100) from the revised February reading of 201.0. In March, the commercial component of the DMI fell 6.6%, and the institutional component decreased 12.9%.

“We are predicting the Dodge Momentum Index to work its way back to historical norms throughout 2023, concurrent with weaker economic conditions,” stated Sarah Martin, associate director of forecasting for Dodge Construction Network. “Lending standards for small banks in particular have substantially tightened as banking insecurity intensifies. As a result, owners and developers are more likely to pullback in the short-term, which would further contract the DMI as we continue into the year.”

Commercial planning in March was driven down by less projects in the office and warehouse sectors, decreasing 29% and 11%, respectively. Institutional planning weakened more substantially, as healthcare fell 17%, education dipped 6%, and amusement planning activity dropped 14%. On the upside, however, a steady flow of research and development laboratories entered the queue, supporting the otherwise weakening sector. Year over year, the DMI remains 24% higher than in March 2022. The commercial component was up 37%, and the institutional component was 2% higher.
...
The DMI is a monthly measure of the initial report for nonresidential building projects in 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 183.7 in March, down from 201.0 the previous month.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggests a solid pickup in commercial real estate construction in 2023. but a slowdown towards the end of 2023 or in 2024.  

As Ms. Martin previously noted, commercial construction is a lagging economic indicator.

by Calculated Risk on 4/10/2023 10:34:00 AM

Today, in the Calculated Risk Real Estate Newsletter: A Few Comments on Commercial Real Estate
A brief excerpt:

The focus of this newsletter is residential real estate, although I follow several commercial real estate (CRE) sectors on my blog. There have been numerous warnings recently about a potential CRE lending crisis and I’d like to add a few comments.

First, when most people think “CRE” they think office and retail space. The concern for retail is online shopping eroding in-store buying (a long-term trend), and work-from-home (WFH) reducing the need for office space (another long-term trend that increased sharply during the pandemic but has reversed recently).

However, there are many other CRE sectors in addition to office and retail: lodging (hotels), health care, warehouses (including self-storage), manufacturing facilities, food and beverage establishments, power and communication, amusement and recreation (Disneyland!), religious, transportation and more.

Most of these other CRE sectors are fine. Of the $11.1 trillion invested in CRE since the year 2000 (according to the BEA), about 12% was in offices and 4% in malls. These are important sectors, but there is much more to CRE.
...
The office sector is concerning mostly due to the shift in the need for space with WFH increasing. However, there wasn’t the extreme overbuilding and poor underwriting that we saw in the 1980’s. This graph shows investment in offices, malls and lodging as a percent of GDP through Q4 2022.

Investment in offices (blue) was increasing prior to the pandemic, but the increase was nothing like the office building boom in the ‘80s with poor underwriting. From 1981 through 1989, office investment averaged 0.7% of GDP - about double the normal level of investment. The vacancy problem this time is related to decreased demand.

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

by Calculated Risk on 4/10/2023 08:30:00 AM

Altos reports that active single-family inventory was up 0.2% week-over-week. Maybe inventory has finally bottomed seasonally.

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of April 7th, inventory was at 411 thousand (7-day average), compared to 410 thousand the prior week.   

Year-to-date, inventory is down 16.3%.

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

The red line is for 2023.  The black line is for 2019.  Note that inventory is up from the previous two years (the record low was in 2022), but still well below normal levels.

Inventory was up 59.1% compared to the same week in 2022 (last week it was up 62.2%), and down 50.9% compared to the same week in 2019 (last week down 50.8%). 

A key will be when inventory starts increasing in 2023 - maybe this is the beginning.

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 4/09/2023 06:34:00 PM

Weekend:
• Schedule for Week of April 9, 2023

Monday:
• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 are up 8 and DOW futures are up 50 (fair value).

Oil prices were up over the last week with WTI futures at $81.02 per barrel and Brent at $85.45 per barrel. A year ago, WTI was at $98, and Brent was at $101 - so WTI oil prices are down about 17% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.57 per gallon. A year ago, prices were at $4.09 per gallon, so gasoline prices are down $0.52 per gallon year-over-year.

by Calculated Risk on 4/09/2023 12:51:00 PM

From BofA:

On net, since the last weekly publication, our 1Q US GDP growth tracking estimate rose from 0.8% q/q saar to 1.6% q/q saar [Apr 7th estimate]
emphasis added

From Goldman:

[W]e lowered our Q1 GDP tracking estimate by 0.3pp to +2.3% (qoq ar)). [Apr 5th 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 1.5 percent on April 5, down from 1.7 percent on April 3. [Apr 5th estimate]

by Calculated Risk on 4/09/2023 08:11:00 AM

With the pandemic, there was a surge in 2nd home buying.

I'm looking at data for some second home markets - and I'm tracking those markets to see if there is an impact from lending changes, rising mortgage rates or the easing of the pandemic.

This graph is for South Lake Tahoe since 2004 through March 2023, and shows inventory (blue), and the year-over-year (YoY) change in the median price (12-month average).

Note: The median price is a 12-month average, and is distorted by the mix, but this is the available data.

Click on graph for larger image.

Following the housing bubble, prices declined for several years in South Lake Tahoe, with the median price falling about 50% from the bubble peak.

Currently inventory is still very low, and only up slightly from the record low set in February 2022. 

Prices are down 0.4% YoY, even with inventory at historically low levels.

It is possible the massive snow storms have limited listings in the Tahoe market this year.

by Calculated Risk on 4/08/2023 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• 1st Look at Local Housing Markets in March

• Update: Comparing the Current Housing Cycle to the 1980 Period

• Moody's: Multifamily Demand "Softened notably over the past few quarters"

• Black Knight Mortgage Monitor: Home Prices Increased Slightly in February; Prices Up 1.9% YoY

• Mortgage Rate Update

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

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

Most content is available for free (and no Ads), but please subscribe!

by Calculated Risk on 4/08/2023 08:11:00 AM

The key reports this week are March CPI and retail sales.

For manufacturing, the March Industrial Production report will be released this week.

----- Monday, April 10th -----
No major economic releases scheduled.

----- Tuesday, April 11th -----
6:00 AM ET: NFIB Small Business Optimism Index for March.

----- Wednesday, April 12th -----
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 March from the BLS. The consensus is for 0.3% increase in CPI (up 5.2% YoY) and a 0.4% increase in core CPI (up 5.6% YoY).

2:00 PM: FOMC Minutes, Meeting of March 21-22

----- Thursday, April 13th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 233 thousand initial claims, up from 228 thousand last week.

8:30 AM: The Producer Price Index for March from the BLS. The consensus is for a 0.0% increase in PPI, and a 0.3% increase in core PPI.

----- Friday, April 14th -----
8:30 AM: Retail sales for March is scheduled to be released.  The consensus is for a 0.4% decrease in retail sales. 

This 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 6.1% on a YoY basis in February.

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

This graph shows industrial production since 1967.

The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to decrease to 79.0%.

10:00 AM: University of Michigan's Consumer sentiment index (Preliminary for April).

by Calculated Risk on 4/07/2023 08:51:00 PM

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

On COVID (focus on hospitalizations and deaths).  Data is now weekly.

After the first few weeks, the pandemic low for weekly deaths had been the week of July 7, 2021, at 1,690 deaths.  

Weekly deaths increased this week after setting a new pandemic low at 1,537 the previous week (see graph below).

COVID Metrics
	Now	Week Ago	Goal
New Cases per Week2	120,820	136,879	≤35,0001
Hospitalized2	13,324	15,136	≤3,0001
Deaths per Week2	1,773	1,537	≤3501
1my goals to stop weekly posts, 2Weekly for Cases, Currently Hospitalized, and Deaths 🚩 Increasing number weekly for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

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

For cases, the low was 82,186.  

For COVID hospitalizations, the low was 9,821. 

by Calculated Risk on 4/07/2023 03:25:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

Rail volumes today are being negatively influenced by broader economic trends, including slowdowns in industrial output, high inventory levels at many retailers, lower port activity, and consumer spending that’s not as robust as it was during most of the last three years. Unfortunately, to date there are no clear indications that this uncertainty will dissipate in the near term.

Total U.S. freight carloads were down 1.2% in March 2023 from March 2022, their fourth year-over-year decline in the past five months. In 2023’s first quarter, total carloads were down 0.3% from last year. ... Meanwhile, U.S. intermodal volume fell 13.3% in March 2023, its 13th straight year-over-year decline and 19th in the past 20 months. In the first quarter, volume was 3.024 million containers and trailers, down 10.3% from last year and the lowest first-quarter total for intermodal since 2012.
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows the six-week average of U.S. Carloads in 2021, 2022 and 2022:

U.S. freight railroads originated 1.164 million total carloads in March 2023, down 1.2%, or 13,794 carloads, from the same period in 2022.

For the first quarter of 2023, total carloads were down 0.3%, or 9,068 carloads, from last year.

The second graph shows the six-week average (not monthly) of U.S. intermodal in 2021, 2022 and 2023: (using intermodal or shipping containers):

U.S. railroads also had 1.160 million intermodal originations in March 2023, down 13.3% from March 2022. ... March 2023 was only the second month since March 2017 (January 2023 was the other) in which originated carloads exceeded originated intermodal units.
...
Reasons for intermodal’s decline this year include consumer spending that is less robust than it has been; reduced port activity; too-high inventory levels at many retailers; and lower truck rates that make all-truck movements more price competitive.

by Calculated Risk on 4/07/2023 11:56:00 AM

Today, in the Calculated Risk Real Estate Newsletter: 1st Look at Local Housing Markets in March

A brief excerpt:

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

Closed sales in March were mostly for contracts signed in January and February. Since 30-year fixed mortgage rates were over 6% for all of January and February - compared to 4% range the previous year - closed sales were down significantly year-over-year in March. However, the impact was probably not as severe as for closed sales in December and January (rates were the highest in October and November 2022 when contracts were signed for closing in December and January).
...
Median sales prices for single family homes were down 7.6% year-over year (YoY) in Las Vegas, down 7.5% in the Northwest, and down 6.3% YoY in Denver.
...
In March, sales in these markets were down 26.5%. In February, these same markets were down 24.3% YoY Not Seasonally Adjusted (NSA).

This is a slightly larger YoY decline NSA than in February for these early reporting markets. The March existing home sales report will show another significant YoY decline, and the 19th consecutive month with a YoY decline in sales.

This was a just a few early reporting markets. Many more local markets to come!

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

by Calculated Risk on 4/07/2023 11:09:00 AM

From Manheim Consulting today: Wholesale Used-Vehicle Prices See Modest Increase in March

Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 1.5% in March from February. The Manheim Used Vehicle Value Index (MUVVI) rose to 238.1, down 2.4% from a year ago. March’s increase was moderated by the seasonal adjustment. The non-adjusted price change in March increased by 3.5% compared to February, moving the unadjusted average price down 2.9% year over year.
emphasis added

Click on graph for larger image.

This index from Manheim Consulting is based on all completed sales transactions at Manheim’s U.S. auctions.

The Manheim index suggests used car prices increased in March (seasonally adjusted) and were down 2.4% year-over-year (YoY).

by Calculated Risk on 4/07/2023 09:20:00 AM

The headline jobs number in the March employment report was close to expectations, however employment for the previous two months was revised down by 17,000, combined.  The participation rate and employment population ratio increased, and the unemployment rate decreased to 3.5%.

Leisure and hospitality gained 72 thousand jobs in March.  At the beginning of the pandemic, in March and April of 2020, leisure and hospitality lost 8.2 million jobs, and are now down 368 thousand jobs since February 2020.  So, leisure and hospitality has now added back about 96% all of the jobs lost in March and April 2020. 

Construction employment decreased 9 thousand and is now 280 thousand above the pre-pandemic level. 

Manufacturing lost 1 thousand jobs and is now 198 thousand above the pre-pandemic level.

Earlier: March Employment Report: 236 thousand Jobs, 3.5% Unemployment Rate

In March, the year-over-year employment change was 4.15 million jobs.

Prime (25 to 54 Years Old) Participation

Since the overall participation rate is impacted by both cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

The 25 to 54 participation rate was unchanged in March at 83.1% from 83.1% in February, and the 25 to 54 employment population ratio increased to 80.7% from 80.5% the previous month.

Both are at the pre-pandemic levels and suggest essentially all of the prime age workers have returned to the labor force.

Average Hourly Wages

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

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.

Wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 4.2% YoY in March. 

Wages growth was strong last year in the March through July period, so year-over-year wage growth will likely slow further over the next few months.

Part Time for Economic Reasons

From the BLS report:

"The number of persons employed part time for economic reasons was essentially unchanged at 4.1 million in March. These individuals, who would have preferred full- time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."

The number of persons working part time for economic reasons increased in March to 4.102 million from 4.067 million in February. This is at pre-recession levels.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 6.7% from 6.8% in the previous month. This is down from the record high in April 22.9% and up from the lowest level on record (seasonally adjusted) in December 2022 (6.5%). (This series started in 1994). This measure is below the level in February 2020 (pre-pandemic).

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.104 million workers who have been unemployed for more than 26 weeks and still want a job, up from 1.057 million the previous month.

This is at pre-pandemic levels.

Summary:

The headline monthly jobs number was close to expectations; however, employment for the previous two months was revised down by 17,000, combined.   The headline unemployment rate decreased to 3.5%.

Overall, this was a solid employment report.

by Calculated Risk on 4/07/2023 08:41:00 AM

From the BLS:

Total nonfarm payroll employment rose by 236,000 in March, and the unemployment rate changed little at 3.5 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in leisure and hospitality, government, professional and business services, and health care.
...
The change in total nonfarm payroll employment for January was revised down by 32,000, from +504,000 to +472,000, and the change for February was revised up by 15,000, from +311,000 to +326,000. With these revisions, employment in January and February combined is 17,000 lower than previously reported.
emphasis added

Click on graph for larger image.

The first graph shows the jobs added per month since January 2021.

Total payrolls increased by 236 thousand in March.  Private payrolls increased by 189 thousand, and public payrolls increased 47 thousand.

Payrolls for January and February were revised down 17 thousand, combined.

The second graph shows the year-over-year change in total non-farm employment since 1968.

In March, the year-over-year change was 4.15 million jobs.  Employment was up significantly year-over-year.

The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate increased to 62.6% in March, from 62.5% in February. This is the percentage of the working age population in the labor force.

The Employment-Population ratio increased to 60.4% from 60.2% (blue line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate decreased in March to 3.5% from 3.6% in February.

This was close to consensus expectations; however, January and February payrolls were revised down by 17,000 combined.  

I'll have more later ...

by Calculated Risk on 4/06/2023 09:33:00 PM

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

Friday:
• At 8:30 AM ET, Employment Report for March.   The consensus is for 240,000 jobs added, and for the unemployment rate to be unchanged at 3.6%.

by Calculated Risk on 4/06/2023 04:29:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for March. The consensus is for 240,000 jobs added, and for the unemployment rate to be unchanged at 3.6%.

There were 311,000 jobs added in February, and the unemployment rate was at 3.6%.

From BofA economists:

"For the March employment report, we forecast a 265k increase in nonfarm payrolls. ... Weather is the main reason why we expect the pace of hiring to have moderated slightly in March. January and February were both unseasonably warm with limited snowfall, which according to estimates from the San Francisco Fed boosted growth in payrolls in both months. Climate data for March, however, is much more in line with seasonal norms. Therefore, we don’t expect to see the same weather boost. ... we expect the unemployment rate to fall by a tenth to 3.5%. "

From Goldman Sachs:

"We estimate nonfarm payrolls rose 260k in March (mom sa) ... We estimate the unemployment rate was unchanged at 3.6%."

• ADP Report: The ADP employment report showed 145,000 private sector jobs were added in March.  This suggests job gains below consensus expectations, however, in general, ADP hasn't been very useful in forecasting the BLS report.

• ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index decreased in March to 46.9%, down from 49.1% last month.   This would suggest about 35,000 jobs lost in manufacturing. The ADP report indicated 30,000 manufacturing jobs lost in March.

The ISM® services employment index decreased in March to 51.3%, from 54.0% last month.   This would suggest service employment increased 110,000 in March.

Combined, the ISM surveys suggest 75,000 jobs added in March (well below the consensus forecast).

• Unemployment Claims: The weekly claims report showed an increase in the number of initial unemployment claims during the reference week (includes the 12th of the month) from 217,000 in February to 247,000 in March. This would usually suggest more layoffs in March than in February. 

•  COVID: As far as the pandemic, the number of weekly cases during the reference week in March was around 165,000, down from 263,000 in February.  

• Weather: In January and February, the San Francisco Fed estimated that weather adjusted employment gains added 150+ thousand to the employment reports, and there should be some payback in March.

• Conclusion: a 240K report would be solid given the various indicators suggesting a slowdown in the economy.  Some of the usual indicators - like the ISM report and the unemployment claims - suggest a sharp slowdown in job growth in March.  I'll take the under this month.

by Calculated Risk on 4/06/2023 03:04:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Mortgage Rate Update

Excerpt:

Mortgage News Daily reports that the most prevalent 30-year fixed rate is now at 6.18% for top tier scenarios. Usually there is a fairly steady spread between the ten-year Treasury yield and 30-year mortgage rates, although - as housing economist Tom Lawler explained in Mortgage/Treasury Spreads, Part I and Part II - the spread has widened due to several factors including volatility and pre-payment speeds.

With the ten-year yield at 3.3%, and based on an historical relationship, 30-year rates would currently be around 5.0%. So, mortgage rates are higher than expected based on the ten-year yield - for reasons Lawler explained

The graph shows the relationship between the monthly 10-year Treasury Yield and 30-year mortgage rates from the Freddie Mac survey. Note that the red dots are the last 12 months of data.

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

by Calculated Risk on 4/06/2023 11:25:00 AM

From CoStar: STR: US Hotel Room Rates Maintain Year-Over-Year and Pre-Pandemic Leads

Aligned with normal spring break patterns, U.S. hotel performance showed mix comparisons from the previous week, according to STR‘s latest data through April 1.

March 26 through April 1, 2023 (percentage change from comparable weeks in 2022, 2019):

• Occupancy: 66.2% (+3.4%, -3.5%)
• Average daily rate (ADR): $158.40 (+7.3%, +19.9%)
• Revenue per available room (RevPAR): $104.78 (+10.9%, +15.7%)
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 move more sideways until the Summer.

by Calculated Risk on 4/06/2023 09:54:00 AM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report released today from Sabrina Speianu: Weekly Housing Trends View — Data Week Ending Apr 1, 2023

• Active inventory growth continued to climb, but at a lower rate, with for-sale homes up 53% above one year ago. The inventory of for-sale homes rose compared to last year, but at a slower pace than the previous week for a third time in a row as a smaller number of hopeful homebuyers still outnumber new sellers on the market. Typically by this point in the spring season, the inventory of homes for sale is 2 to 3 percent higher than January-levels. However, the inventory of homes for sale was 11 percent lower than the beginning of the year after 13 weeks of declines. While home inventory was higher than the same week in the last two years, this was primarily driven by longer time on market. The inventory of homes for sale remained at nearly half of what it was several years ago before the pandemic.
...
• New listings–a measure of sellers putting homes up for sale–were again down, this week by 22% from one year ago. The number of newly listed homes has been lower than the same time the previous year for the past 39 weeks. This past week, the gap from last year increased slightly but has remained in the -20% to -22% range for the past three weeks. While newly listed homes are increasing for the spring season, this seasonal uptick remains lower than all previous years on record since 2017.

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

Inventory is still up sharply year-over-year - from record lows - however, the YoY increase has slowed recently.