by Calculated Risk on 12/13/2012 02:44:00 PM

Note: I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

Recently there has been a dramatic shift from REO to short sales, and the percentage of distressed sales has been declining. This data would suggest some improvement in the Sacramento market.

In November 2012, 47.6% of all resales (single family homes and condos) were distressed sales. This was down slightly from 47.7% last month, and down from 64.1% in November 2011. The is the lowest percentage of distressed sales - and therefore the highest percentage of conventional sales - since the association started tracking the data.

The percentage of REOs fell to 11.5%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 36.1%, the highest percentage recorded.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been an increase in conventional sales this year, and there were more than three times as many short sales as REO sales in November (the highest recorded). The gap between short sales and REO sales is increasing.

Total sales were up slightly from November 2011, and conventional sales were up 46% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, but an increase in conventional sales.

Active Listing Inventory for single family homes declined 56.7% from last November, although listings were up 2% in November compared to October.

Cash buyers accounted for 37.1% of all sales (frequently investors), and median prices were up sharply year-over-year (the mix has changed).

This seems to be moving in the right direction, although the market is still in distress. We are seeing a similar pattern in other distressed areas to more conventional sales, and a shift from REO to short sales.

by Calculated Risk on 12/13/2012 11:55:00 AM

Economist Jed Kolko at Trulia writes: Housing in 2013: What’s In, What’s Out. Kolko discusses five predictions for 2013, the first is on inventory:

1. OUT: Will Home Prices Bottom? IN: Will Inventories Bottom? The big question this year was whether home prices had finally hit bottom. We now know the answer is a resounding “Yes”: every major index shows asking and sales prices rising in 2012. The key question in 2013, though, is whether prices will rise enough so that for-sale inventory–which has fallen 43% nationally since the summer of 2010–will hit bottom and start expanding again. The sharp decline in inventory was a necessary correction to the oversupply of homes after the bubble, but now inventory is below normal levels and holding back sales, particularly in California and the rest of the West. Rising prices should lead to more inventory, for two reasons: (1) rising prices encourage new construction, and (2) rising prices encourage some homeowners to sell. The big question for 2013 is whether today’s price gains will continue strongly enough to encourage builders to build and homeowners to sell. Why it matters: more inventory will lead to more sales and give buyers more homes to choose from.

This is a very important question for 2013. This graph shows nationwide inventory for existing homes through October.

Click on graph for larger image.

According to the NAR, inventory declined to 2.14 million in October down from 2.17 million in September. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

If we see the usually seasonal decline in December and January, then NAR reported inventory will probably fall to the 1.80 to 1.85 million range. That would be the lowest level since January 2001.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. When we compare inventory to earlier periods, we need to remember there were essentially no "short sale contingent" listings prior to 2006.

The second 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 decreased 21.9% year-over-year in October from October 2011. This was the 20th consecutive month with a YoY decrease in inventory. It appears that inventory will be down sharply YoY in November too.

Months of supply declined to 5.4 months in October and is now in the normal range.  I expect months-of-supply will be under 5 in December and January for the first time since early 2005.

Whenever I talk with real estate agents, I ask why they think inventory is so low. A common answer is that people don't want to sell at the bottom. In a market with falling prices, sellers rush to list their homes, and inventory increases. But if sellers think prices have bottomed, then they believe they can be patient, and inventory declines. Another reason is that many homeowners are "underwater" on their mortgage and can't sell.

If prices increase enough (probably around 5% in 2012) then some of the potential sellers will come off the fence, and some of these underwater homeowners will be able to sell. It might be enough for inventory to bottom in 2013.

Another issue is if the Mortgage Debt Relief Act of 2007 is allowed to expire at the end of 2012. If the act isn't extended, many of the contingent short sales will be pulled off the market. Although this doesn't impact active inventory directly, it might have an indirect impact.

Right now my guess is active inventory will bottom in 2013.

by Calculated Risk on 12/13/2012 09:00:00 AM

On a monthly basis, retail sales increased 0.3% from October to November (seasonally adjusted), and sales were up 3.7% from November 2011. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.4 billion, an increase of 0.3 percent from the previous month and 3.7 percent above November 2011. ... The September to October 2012 percent change was unrevised from -0.3 percent.

Click on graph for larger image.

The change in sales for October was unrevised at a 0.3% decline.

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

Retail sales are up 24.5% from the bottom, and now 8.8% above the pre-recession peak (not inflation adjusted)


The second graph shows the same data, but just since 2006 (to show the recent changes). Most of the decline in October was due to fewer auto sales - a direct impact of Hurricane Sandy. Retail sales ex-autos were unchanged in November - so only autos bounced back.

Excluding gasoline, retail sales are up 21.3% from the bottom, and now 8.9% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.0% on a YoY basis (3.7% for all retail sales).

This was at the consensus forecast of no change ex-autos, but below the consensus forecast for total retail sales of a 0.6% increase in November. Retail sales are still sluggish, but generally trending up.

by Calculated Risk on 12/13/2012 08:37:00 AM

The DOL reports:

In the week ending December 8, the advance figure for seasonally adjusted initial claims was 343,000, a decrease of 29,000 from the previous week's revised figure of 372,000. The 4-week moving average was 381,500, a decrease of 27,000 from the previous week's revised average of 408,500.

The previous week was revised up from 370,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.


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 declined to 381,500.

The recent sharp increase in the 4 week average was due to Hurricane Sandy as claims increased significantly in NY, NJ and other impacted areas. Now, as expected, the 4-week average is almost back to the pre-storm level.

Weekly claims were lower than the 370,000 consensus forecast.


And here is a long term graph of weekly claims:

Note: We use the 4-week average to smooth out noise, but following an event like Hurricane Sandy,  the 4-week average lags the event. It looks like the average should decline next week to around 370,000 or so.


All current Employment Graphs

by Calculated Risk on 12/12/2012 09:31:00 PM

The big story today was the Federal Open Market Committee (FOMC) of the Federal Reserve announcing thresholds for the unemployment rate and inflation that will guide Fed Funds rate policy in the future. I think this significantly improves Fed communication. Also the FOMC - as expected - announced that they will expand QE3 by $45 billion per month starting in January after the expiration of Operation Twist.

Going forward, the Fed will adjust the amount of monthly QE3 purchases based on their evolving economic outlook.

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 370 thousand. The 4-week of claims should start to decline back towards the pre-Hurricane Sandy level.

• Also at 8:30 AM, Retail sales for November will be released. October retail sales (especially auto sales) were impacted by Hurricane Sandy, and auto sales bounced back in November. The consensus is for retail sales to increase 0.6% in November, and to be unchanged ex-autos.

• Also at 8:30 AM, the Producer Price Index for November will be released. The consensus is for a 0.5% decrease in producer prices (0.2% increase in core).



Another question for the December economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).