by Calculated Risk on 12/19/2013 10:00:00 AM

The NAR reports: Existing-Home Sales Decline in November, but Strong Price Gains Continue

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 4.3 percent to a seasonally adjusted annual rate of 4.90 million in November from 5.12 million in October, and are 1.2 percent below the 4.96 million-unit pace in November 2012. This is the first time in 29 months that sales were below year-ago levels.
...
Total housing inventory at the end of November declined 0.9 percent to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, compared with 4.9 months in October. Unsold inventory is 5.0 percent above a year ago, when there was a 4.8-month supply.

Click on graph for larger image.

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

Sales in November 2013 (4.90 million SAAR) were 4.3% lower than last month, and were 1.2% below the November 2012 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory was declined to 2.09 million in November from 2.11 million in October.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third 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 increased 5.0% year-over-year in November compared to November 2012.   The year-over-year change for October was revised down to unchanged, so this is the first year-over-year increase in inventory since early 2011 and indicates inventory bottomed earlier this year.

Months of supply was at 5.1 months in November.

This was below to expectations of sales of 5.04 million.  For existing home sales, the key number is inventory - and inventory is still low, but up year-over-year.    I'll have more later ...

by Calculated Risk on 12/19/2013 08:36:00 AM

The DOL reports:

In the week ending December 14, the advance figure for seasonally adjusted initial claims was 379,000, an increase of 10,000 from the previous week's figure of 369,000. The 4-week moving average was 343,500, an increase of 13,250 from the previous week's revised average of 330,250.

The previous week was revised up from 368,000.

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 increased to 343,500.

This is the second consecutive week with elevated claims, but this might be impacted by the holidays.

by Calculated Risk on 12/18/2013 08:32:00 PM

A prediction: When the NAR releases the November existing home sales report tomorrow showing a decline in sales, some reporters will question the "housing recovery".

 First, for jobs and GDP, the housing recovery is about "residential investment", and that mostly means housing starts and new home sales. Second, a decline in existing home sales could be good news, if the decline is mostly related to fewer distressed sales - and if conventional sales are increasing.

I've been pounding on those two themes for some time, but not everyone got the memo :-).

Thursday:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 337 thousand from 368 thousand last week.

• At 10:00 AM, Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for sales of 5.02 million on seasonally adjusted annual rate (SAAR) basis. Sales in October were at a 5.12 million SAAR. Economist Tom Lawler is forecasting the NAR will report sales of 4.98 million SAAR in November.

• Also at 10:00 AM, the Philly Fed manufacturing survey for December. The consensus is for a reading of 10.0, up from 6.5 last month (above zero indicates expansion).

by Calculated Risk on 12/18/2013 07:02:00 PM

In addition to housing starts for November, the Census Bureau also released the Q3 "Started and Completed by Purpose of Construction" report this morning.

It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.

The quarterly report released this morning showed there were 120,000 single family starts, built for sale, in Q3 2013, and that was above the 90,000 new homes sold for the same quarter, so inventory increased in Q3 (Using Not Seasonally Adjusted data for both starts and sales).

This was the biggest gap between sales and starts since 2006, but one quarter isn't very worrisome.

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Click on graph for larger image.

Single family starts built for sale were up about 17% compared to Q3 2012. This is still very low, but the highest for Q3 since 2007.

Owner built starts were up 8% year-over-year. And condos built for sale are just above the record low.

The 'units built for rent' had increased significantly, but the year-over-year growth has slowed to about 15%.

The second graph shows quarterly single family starts, built for sale and new home sales (NSA).

In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. The difference on this graph is pretty small, but the builders were starting about 30,000 more homes per quarter than they were selling (speculative building), and the inventory of new homes soared to record levels. Inventory of under construction and completed new home sales peaked at 477,000 in Q3 2006.

In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory that they had built up in 2005 and 2006.

Now it looks like builders are generally starting about the same number of homes that they are selling (although they started significantly more than they sold in Q3), and the inventory of under construction and completed new home sales is still very low.   This gap will only be concerning if it persists.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations, but it does suggest the builders are keeping inventories under control, and also suggests that the year-over-year increase in housing starts is directly related to an increase in demand and not renewed speculative building.

by Calculated Risk on 12/18/2013 02:13:00 PM

The key sentences in the announcement were: "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month."

And on forward guidance: "The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal."

Rates will be low for a long long time ...

As far as the "Appropriate timing of policy firming", the participants moved out a little with three participants now seeing the first increase in 2016.

Bernanke press conference here or watch below. 



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On the projections, GDP was mostly unrevised, the unemployment rate was revised down slightly, and inflation was revised down. 

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015	2016
Dec 2013 Meeting Projections	2.2 to 2.3	2.8 to 3.2	3.0 to 3.4	2.5 to 3.2
Sept 2013 Meeting Projections	2.0 to 2.3	2.9 to 3.1	3.0 to 3.5	2.5 to 3.3
June 2013 Meeting Projections	2.3 to 2.6	3.0 to 3.5	2.9 to 3.6

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 7.0% in November. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015	2016
Dec 2013 Meeting Projections	7.0 to 7.1	6.3 to 6.6	5.8 to 6.1	5.3 to 5.8
Sept 2013 Meeting Projections	7.1 to 7.3	6.4 to 6.8	5.9 to 6.2	5.4 to 5.9
June 2013 Meeting Projections	7.2 to 7.3	6.5 to 6.8	5.8 to 6.2

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The FOMC believes inflation will stay significantly below target.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015	2016
Dec 2013 Meeting Projections	0.9 to 1.0	1.4 to 1.6	1.5 to 2.0	1.7 to 2.0
Sept 2013 Meeting Projections	1.1 to 1.2	1.3 to 1.8	1.6 to 2.0	1.7 to 2.0
June 2013 Meeting Projections	0.8 to 1.2	1.4 to 2.0	1.6 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015	2016
Dec 2013 Meeting Projections	1.1 to 1.2	1.4 to 1.6	1.6 to 2.0	1.8 to 2.0
Sept 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.7	1.7 to 2.0	1.9 to 2.0
June 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.8	1.7 to 2.0