by Calculated Risk on 12/31/2013 09:24:00 AM

Note: I'm having difficulties with the S&P website. I'll some graphs soon ...

From Reuters: US home prices notch big annual gain: S&P/Case-Shiller

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.2 percent in October on a non-seasonally adjusted basis ... On a seasonally-adjusted basis, prices were up 1 percent.

Compared to a year earlier, prices were up 13.6 percent ...

the more subdued monthly gains "show we are living on borrowed time and the boom is fading," David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.

This was close to the consensus forecast of a 13.7% year-over-year increase.

by Calculated Risk on 12/30/2013 08:50:00 PM

I've posted some thoughts (and a few predictions) on half of my ten questions for 2014. There will be more to come (I've also received some thoughtful disagreements - I don't have a crystal ball, I just try to outline my current views):
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

Tuesday:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October. The consensus is for a 13.7% year-over-year increase in the Composite 20 index (NSA) for October.

• At 9:45 AM, the Chicago Purchasing Managers Index for December. The consensus is for a decrease to 61.3, down from 63.0 in November.

• At 10:00 AM, the Conference Board's consumer confidence index for December. The consensus is for the index to increase to 76.8 from 70.4.

by Calculated Risk on 12/30/2013 05:46:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

6) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  Even with the recent increases, RI is still at a historical low level. How much will RI increase in 2014?

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2013.

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish so far. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2014.

The second graph shows total and single family housing starts through November 2013.

Housing starts are on pace to increase about 20% in 2013. And even after the sharp increase over the last two years, the approximately 938 thousand housing starts in 2013 will still be the 6th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the five lowest years were 2008 through 2012).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 60% over the next few years from the 2013 level.

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
20131	938.0	20%	625.0	17%
12013 estimated

The third graph shows New Home Sales since 1963 through November 2013. The dashed line is the current sales rate.

Just like for RI as a percent of GDP, and housing starts, new home sales were up in 2013, but are still near the low historically.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2014.   However, unlike last year when I reported that some builders were land constrained (not enough finished lots in the pipeline), land should be less of an issue this year.  Even with the foreclosures, I expect another solid year of growth for new home sales. 

Here are some recent forecasts for housing in 2014. I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013. That would still make 2014 the tenth weakest year on record for housing starts (behind 2008 through 2012 and few other recession lows). So I expect further growth in 2015 too.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/30/2013 11:45:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

7) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 12% or so in 2013. What will happen with house prices in 2014?

Calling the bottom for house prices in 2012 was correct, but I underestimated how quickly prices would increase in 2013.

Click on graph for larger image.

This graph shows the year-over-year change in the Case-Shiller Composite 10 and Composite 20 indexes.

The Composite 10 SA was up 13.2% YoY in September, and the Composite 20 SA was also up 13.2% year-over-year. Other house price indexes have indicated lower gains (see table below).

Note: the year-over-year gain in 2010 was related to the homebuyer tax credit.  However, in 2010, prices were still too high based on fundamentals.   However, when prices started increasing in 2012, prices were more in line with fundamentals based on price-to-income, price-to-rent and real house prices.

Although I use Case-Shiller, I do think the index overstates national prices due to the inclusion of foreclosures and the weighting of certain coastal areas. The following table shows the year-over-year change for several house prices indexes.  Clearly prices were up in 2013, but there was a pretty significant difference between the various measures of prices:

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Sep-13	13.2%
Case-Shiller National	Q3	11.2%
CoreLogic	Oct-13	12.5%
Zillow	Oct-13	5.2%
LPS	Oct-13	8.8%
FNC	Oct-13	6.5%
FHFA Purchase Only	Oct-13	8.8%

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.

In some areas, like Phoenix, there appeared to be a bounce off the bottom - but that bounce appears to be slowing. CoreLogic economist Sam Khater wrote today: Low-End Home Price Correction Over, Portends a Substantial Slowdown in Prices

Analyzing low-end versus high-end price trends reveals two stylized facts. First, low-end price changes and levels lead high-end prices and levels by six months to a year. The low-end price trough in March 2011 was clearly foreshadowing that the market was set to recover. Second, low-end prices are much more volatile than high end prices, which sometimes makes turning points easier to catch.

While there are some caveats, clearly lower-end home prices are decelerating, especially in the former boom/bust markets of the Southwest. More importantly, the magnitude of the declines presages lower growth for prices overall.

In 2014, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. This suggests more house price increases in 2014, but probably at a slow pace.

As Khater noted, some of the "bounce back" in certain areas is probably over, also suggesting slower price increases going forward.  And investor buying appears to have slowed.  A positive for the market will probably be a little looser mortgage credit.

All of these factors suggest further prices increases in 2014, but at a slower rate than in 2013.   There tends to be some momentum for house prices, and I expect we will see prices up mid-to-high single digits (percentage) in 2014 as measured by Case-Shiller.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/30/2013 10:00:00 AM

From the NAR: Pending Home Sales Edge Up in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched up 0.2 percent to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6 percent below November 2012 when it was 103.3. The data reflect contracts but not closings
...
The PHSI in the Northeast declined 2.7 percent to 82.6 in November, but is 1.9 percent above a year ago. In the Midwest the index fell 3.1 percent to 100.6 in November, but is 0.4 percent higher than November 2012. Pending home sales in the South rose 2.3 percent to an index of 116.1 in November, and are 0.1 percent above a year ago. The index in the West increased 1.8 percent in November to 95.0, but is 8.7 percent below November 2012, in part from inventory constraints.
emphasis added

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.