by Calculated Risk on 12/26/2012 09:02:00 PM

First, a reminder that rents can't outpace incomes for long ... from Conor Dougherty at the WSJ: Tenants Feel Pinch of Rising Rents

The rising cost of renting is putting pressure on tenants at a time when many are still grappling with slow or falling income growth. In the third quarter, renters spent 24.12% of their disposable income on financial obligations—things such as rent, debts and auto leases. That was the highest level since early 2010, according to the Federal Reserve.

And on house prices from Nick Timiraos at the WSJ: Home Prices Hit a Milestone

Home prices are on track to notch their first yearly gain since 2006, the strongest performance since the housing bust and a development that could accelerate the real-estate rebound even as the broader economy stutters.
...
"The tide has changed," said Ivy Zelman, chief executive of research firm Zelman & Associates. "People feel it's OK to go back into residential real estate—it's no longer taboo—and that change in sentiment could have a very powerful effect."

Thursday economic releases:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 365 thousand from 361 thousand last week. If correct, this would put the 4-week average near the low for the year.

• At 10:00 AM, New Home Sales for November from the Census Bureau. The consensus is for an increase in sales to 375 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 368 thousand in October.

• Also at 10:00 AM, the Conference Board's consumer confidence index for December will be released. The consensus is for an decrease to 70.0 from 73.7 last month.

Earlier on house prices:
• Case-Shiller: House Prices increased 4.3% year-over-year in October
• Comment on House Prices, Real House Prices, and Price-to-Rent Ratio
• All Current House Price Graphs


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

by Calculated Risk on 12/26/2012 04:42:00 PM

CR: Housing economist Tom Lawler sent me the following long piece that suggests a large number of the excess vacant housing supply has been absorbed.

Housing economist Tom Lawler writes: An “Update” to the “Excess” Supply of Housing; How Much Has the Number of Vacant Homes Fallen Since April 1, 2010 (through December 1, 2012?)

It is over 2 1/2 years since the Decennial Census 2010’s “snapshot” of the US population and housing market on April 1, 2010. While private housing analysts are still awaiting the result of research by Census analysts on the reasons for the sharply different results of Census 2010 compared to other Census surveys (e.g., the ACS and the HVS), I thought it might be useful to review some numbers since the Census was taken.

On the housing production from, Census estimates suggest that from April 2010 to November 2012, housing completions plus manufactured housing units totaled about 1.817 million (an annualized pace of about 681 thousand).

There are no data on the net loss to the housing stock over this period. Prior to the release of Census 2010 results many folks thought that the net loss to the housing stock last decade was averaging around 200 – 250 thousand units a year, but the decennial Census results suggested a much smaller number. But for fun, let’s assume that the net loss in the housing stock since the decennial Census has been about 400,000, or an annualized rate of 150,000.

Such a number would imply that the housing stock at the end of November/beginning of December increased by about 1.417 million, or an annualized rate of about 531 thousand.

Now what about the number of households (or occupied housing units)? Sadly, here there are no good, reliable data to count on. For 2012, there are two sources of “estimates” on US “households,” both based on supplement surveys of the Current Population Survey. One source is the Housing Vacancy Survey, which assumes that (1) the Census’ Population Division estimates of the US housing stock are correct; and (2) the HVS’ estimates of the % of the housing stock are correct. Census 2010 results (and to a lesser extent ACS results) strongly indicated, of course, that the latter assumption is not correct: the HVS appears to overstate significantly the share of the housing stock that is vacant, with the overstatement growing over the past few decades.

With that caveat in mind, the HVS estimates are that the number of US households averaged 114.916 million in September 2012, compared to an average of 112.633 million in March-April of 2010. The official Census 2010 household estimate for April 2010 was 116.716 million. Assuming that the HVS estimates for the last 3 months of 2012 show similar YOY growth as the previous few months, and “grossing up” the totals to be consistent with Census 2010 totals, the HVS estimates might suggest household growth from April 1, 2010 to December 1, 2012 of about 2.62 million, or an annualized rate of about 983 thousand. This is a “low” estimate.

Another source of an “estimate” of US households in 2012 is the Annual Social and Economic Supplement to the Current Population Survey. This annual survey, taken over February, March, and April with an “expanded” sample size relative to the “normal” monthly CPS and HVS surveys, purportedly produces “estimates” of the number of US households in March of each year that are consistent with (1) civilian non-institutionalized population estimates, and (2) survey results. The CPS/ASEC, in essence, is “controlled” to population estimates, as opposed to the CPS/HVS, which is “controlled” to housing stock estimates.

In the latest CPS/ASEC for March, 2012, the estimate of the number of US households was 121.084 million, which is a staggering 4.368 million higher than the official Census 2010 estimate for April 1, 2010. The CPS/ASEC revised household estimate for March, 2011, based on Census 2010 population controls, was 119.927 million, up from the previous 118.682 million in the 2011 report based on Census 2000 population controls. Census did not provide updated March 2010 estimates based on Census 2010 population controls.

It should be noted, however, that the CPS/ASEC household “estimates” are not “controlled” to Census 2010 household estimates, but instead are “controlled” to population estimates, and the CPS/ASEC survey results appear to significantly overstate US households (they also aren’t consistent with decennial Census estimates of the household, as opposed to civilian non-institutionalized, population estimates). I “guesstimate” that a CPS/ASEC household estimate consistent with Census 2010 household population estimates and recently-released 2012 household population estimates by age group for March, 2012 would be about 119.6 million, and that an estimate for December 1, 2012 using updated household population estimates would be about 120.5 million, about 3.8 million higher than the Census 2010 estimate for April 1, 2010, and an annualized increase of about 1.425 million. This is a “high” to “very high” estimate.

Another alternative would be to look at updated estimates of the household population (available through December 1, 2012¹), and then make certain assumptions either about household size (very crude) or make certain assumptions about “headship” rates by age group. Below is a table with some data to start with.

A few things are worth noting: first, overall population growth is estimated to have grown at an annualized rate of about 0.74% since the decennial Census was taken, and the household population is estimated to have grown at an annualized rate of 0.76%. This growth rate is significantly lower than last decade’s average, partly reflecting lower immigration levels and partly reflecting lower birth rates.

The population of adults – which is more important in terms of household growth, is estimated to have grown at a more rapid annualized rate. E.g., the 25+ year household population is estimated to have grown at an annualized rate of about 1.09%.

				Annualized % Chg
	4/1/2010		12/1/2012
Resident Population	308,747,508		314,918,615	0.74%
Household Population	300,758,251	Average Household Size	306,855,515	0.76%
Households	116,716,292	2.577
Household Population by Age Group
15-24	40,202,045		40,442,554	0.22%
25-34	40,005,898		41,371,961	1.27%
35-44	40,277,153		39,666,291	-0.57%
45-54	44,288,729		43,274,284	-0.87%
55-64	36,068,290		38,485,646	2.46%
65-74	21,429,316		24,256,989	4.76%
75+	17,380,962		18,231,315	1.81%
25+ Years	199,450,348		205,286,486	1.09%
Households by Age Group		Headship Rate*
15-24	5,400,799	13.43%
25-34	17,957,375	44.89%
35-44	21,290,880	52.86%
45-54	24,907,064	56.24%
55-64	21,340,338	59.17%
65-74	13,504,517	63.02%
75+	12,315,319	70.86%
* Households divided by Household Population

[Note: the difference between the “resident” population and the “household” population is the number of people estimated to be living in “group quarters,” usually broken out between “institutionalized” (including correctional facilities for adults, juvenile facilities, and nursing/skilled nursing facilities) and “non-institutionalized” (including college/university student housing, military quarters, and other group housing).]

There are two “Q&D” ways one might “gueestimate” the number of households on December 1, 2012: one – very quick, extremely dirty – would be to assume that the average household size had remained the same. That approach, which doesn’t take into account shifts in the age distribution of the population, would lead to an estimate of 119.028 million, up 2.366 million from April 1, 2010.

A second approach would be to assume that the “headship” rates for different age groups on December 1, 2012 was about the same as on April 1, 2012. Using that “Q&D” approach, one would get an estimate of the number of households on December 1, 2012 of about 120.283 million, up 3.567 million from April 1, 2010.

So … let’s assume that a “very low” case for household growth from April 1, 2010 is around 2.4 million (annual rate of 900 thousand); a “high” case is 4.0 million (annual rate of 1.5 million), and a “base” case is around 3.2 million (annual rate of around 1.2 million). What might these numbers mean for the number of vacant homes as of December 1, 2012 compared to April 1, 2010?   Here is a table showing (rounded) what the numbers might look like.

Changes from April 1, 2010 to December 1, 2012 (millions of units)
	Low	Base	High
Household Increase	2.4	3.1	3.8
Housing Production*	1.8	1.8	1.8
Net Housing Units Lost	0.4	0.4	0.4
Housing Units	1.4	1.4	1.4
Vacant Housing Units	-1.0	-1.7	-2.4
*Housing Completions plus Manufactured Housing Placements (with November estimate)

Under a “very low end” estimate of household growth, the number of vacant units since April 1, 2010 would be down by about a million. Under a “very high end” estimate of household growth, the number of vacant housing units would be 2.4 million lower. And a “not too unrealistic” estimate of household growth would imply that the number of vacant housing units was down by about 1.7 million.

Now, does a 1.7 million decline in the number of vacant homes for sale since April 1, 2010 seem plausible? Well, if that were the case one would probably expect that the number of homes for sale, for rent, and held as REO would be down significantly. So, let’s take a look at some available numbers.

NAR estimates that the number of existing homes for sales declined from 3.09 million at the end of March 2010 to 2.03 million at the end of November 2012, a decline of about 1.06 million. Realtor.com’s listings numbers fell by a similar amount. Obviously not all homes listed for sale are vacant, but a significant % are vacant.

Census estimates that the number of completed new SF homes for sales declined from 92 thousand at the end of March 2010 to 40 thousand at the end of October 2012, a decline of 52 thousand.

The REO inventory of Fannie, Freddie, FHA, and private-label ABS, combined with an estimate of the REO inventory of FDIC-insured institutions (based on $ carrying amounts and estimates of the average carrying balance) declined from about 531 thousand from the end of March 2010 to about 367 thousand at the end of September 2012, a decline of about 164 thousand. Some, but probably less than 40%, of these REO properties were listed for sale.

There aren’t good, aggregate data on the number of homes for rent: HVS has estimates, but comparisons with decennial Census data indicate that HVS rental vacancy rates not only are overstated, but also that the overstatement has grown over time. Given that caveat, the HVS estimates show that the number of homes for rent declined from a first-half 2010 average (to come close to an April 1 estimate) of about 4.458 million to a third-quarter 2012 average of 3.809 million, a decline of about 649 thousand. The actual decline is probably larger.

Hmmmm…..gosh, a decline in the number of vacant homes of about 1.7 million since April 1, 2010 sure SEEMS plausible!

But wait: if the number of vacant homes since Census 2010 has been that large, then that would imply a sizable reduction in the “excess” supply of housing – enough so that, if true, one should have expected to see stability in, or even in many areas even increases in, home prices in 2012! Could that really be true? (CR note: see previous posts!)

Looking ahead to the next few years, the likely growth in population by age groups suggests that household formations should average about 1.3 million a year, with some upside if headship rates rebound in any meaningful fashion.

¹ Actually, “estimates” are available through July 1, 2012, and data from August 1, 2012 through December 1, 2012, are short-term “projections.”

CR Note: This was from housing economist Tom Lawler.

by Calculated Risk on 12/26/2012 12:23:00 PM

There is a seasonal pattern for house prices, and I've been predicting that the Case-Shiller indexes would turn negative month-to-month in October on a Not Seasonally Adjusted (NSA) basis.

That is the normal seasonal pattern. Also, as I've noted, I expect smaller month-to-month declines this winter than for the same months last year. Sure enough, Case-Shiller reported that the Composite 20 index declined 0.1% in October from September (barely negative). In October 2011, the index declined 1.3% on a month-to-month basis.

Over the winter, the key will be to watch the year-over-year change in house prices and to compare to the NSA lows in early 2012. I think the house price indexes have already bottomed, and will be up about 6% or so year-over-year when prices reach the usual seasonal bottom in early 2013.

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index over the last several years (both through October). The CoreLogic index turned negative month-to-month in the September report (CoreLogic is a 3 month weighted average, with the most recent month weighted the most). Case-Shiller NSA turned negative month-to-month in the October report (also a three month average, but not weighted).

Case-Shiller reported the fifth consecutive year-over-year (YoY) gain in their house price indexes since 2010 - and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, the previous YoY increase was back in 2006. The YoY increase in October suggests that house prices probably bottomed earlier this year (the YoY change lags the turning point for prices).

The following table shows the year-over-year increase for each month this year.

Case-Shiller Composite 20 Index
Month	YoY Change
Jan-12	-3.9%
Feb-12	-3.5%
Mar-12	-2.6%
Apr-12	-1.7%
May-12	-0.5%
Jun-12	0.6%
Jul-12	1.1%
Aug-12	1.9%
Sep-12	2.9%
Oct-12	4.3%
Nov-12
Dec-12
Jan-13

Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation.

Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index.

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through October) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2003 levels (and also back up to Q3 2010), and the Case-Shiller Composite 20 Index (SA) is back to September 2003 levels, and the CoreLogic index (NSA) is back to January 2004.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to mid-1999 levels, the Composite 20 index is back to July 2000, and the CoreLogic index back to January 2001.

In real terms, most of the appreciation in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q3 1999 levels, the Composite 20 index is back to August 2000 levels, and the CoreLogic index is back to February 2001.

In real terms - and as a price-to-rent ratio - prices are mostly back to 1999 or early 2000 levels.


All Current House Price Graphs

by Calculated Risk on 12/26/2012 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for October (a 3 month average of August, September and October).

This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Sustained Recovery in Home Prices According to the S&P/Case-Shiller Home Price Indices

Data through October 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, ... showed home prices rose 4.3% in the 12 months ending in October in the 20-City Composite, out-distancing analysts’ forecasts. Anticipated seasonal weakness appeared as twelve of the 20 cities and both Composites posted monthly declines in home prices in October.

The 10- and 20-City Composites recorded respective annual returns of +3.4% and +4.3% in October 2012 – larger than the +2.1% and +3.0% annual rates posted for September 2012. In nineteen of the 20 cities, annual returns in October were higher than September. Chicago and New York were the only two cities with negative annual returns in October. Phoenix home prices rose for the 13th month in a row. San Diego was second best with nine consecutive monthly gains.
...
“Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes because home prices tend to be lower in fall and winter than in spring and summer. Both the 10- and 20-City Composites and 19 of 20 cities recorded higher annual returns in October 2012 than in September. The impact of the seasons can also be seen in the seasonally adjusted data where only three cities declined month-to-month. The 10-City Composite annual rate of +3.4% in October was lower than the 20-City Composite annual figure of +4.3% because the two weaker cities – Chicago and New York – have higher weights in the 10-City Composite." [says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.]

“Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength. Higher year-over-year price gains plus strong performances in the southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to theeconomy.'

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.0% from the peak, and up 0.6% in October (SA). The Composite 10 is up 4.8% from the post bubble low set in March (SA).

The Composite 20 index is off 30.3% from the peak, and up 0.7% (SA) in October. The Composite 20 is up 5.4% from the post-bubble low set in March (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 3.4% compared to October 2011.

The Composite 20 SA is up 4.3% compared to October 2011. This was the fifth consecutive month with a year-over-year gain since 2010 (when the tax credit boosted prices temporarily).

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 17 of the 20 Case-Shiller cities in October seasonally adjusted (also 12 of 20 cities increased NSA). Prices in Las Vegas are off 58.0% from the peak, and prices in Dallas only off 4.6% from the peak. Note that the red column (cumulative decline through October 2012) is above previous declines for all cities.

This was slightly above the consensus forecast for a 4.1% YoY increase. I'll have more on prices later.

by Calculated Risk on 12/26/2012 08:39:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses October closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: U.S. Home Prices Up 0.3 Percent for the Month; Up 4.3 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on October 2012 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 15,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The LPS HPI is off 22.6% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 53.6% from the peak in Las Vegas, 45.5% off from the peak in Riverside-San Bernardino, CA (Inland Empire), and barely off in Austin and Houston.

Looking at the year-over-year price change throughout the year - in May, the LPS HPI was up 0.4% year-over-year, in June the index was up 0.9% year-over-year, 1.8% in July, 2.6% in August, 3.6% in September, and now 4.3% in October. This is steady improvement on a year-over-year basis. Note: Case-Shiller for October will be this morning.