Phoenix Real Estate in October: Sales up 13%, Inventory up 1% YoY

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

Inventory was up 1.0% year-over-year in October.  This was the eighth consecutive month with a YoY increase in inventory, following fifteen consecutive months of YoY declines in Phoenix.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in October were up 12.6% year-over-year.

2) Cash Sales (frequently investors) were down to 21.0% of total sales.

3) Active inventory is now up 1.0% year-over-year.  

More inventory (a theme in 2014) – and less investor buying – suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster –  Prices were up 6.3% in 2015 according to Case-Shiller.

Now inventory is increasing a little again, and – if this trend continues in Phoenix – price increases will probably slow in Phoenix.    According to Case-Shiller, prices in Phoenix are up 2.7% through August (about a 4.0% annual rate) – slower than in 2015.

October Residential Sales and Inventory, Greater Phoenix Area, ARMLS
  Sales YoY
Oct-08 5,384 1,348 25.0% 55,7031
Oct-09 8,121 50.8% 2,688 33.1% 39,312 -29.4%
Oct-10 6,591 -18.8% 2,800 42.5% 45,252 15.1%
Oct-11 7,561 14.7% 3,336 44.1% 27,266 -39.7%
Oct-12 7,020 -7.2% 3,081 43.9% 22,702 -16.7%
Oct-13 6,038 -14.0% 1,910 31.6% 26,267 15.7%
Oct-14 6,186 2.5% 1,712 27.7% 27,760 5.7%
Oct-15 6,308 2.0% 1,570 24.9% 24,702 -11.0%
Oct-16 7,102 12.6% 1,494 21.0% 24,950 1.0%
1 October 2008 probably includes pending listings



MBA: “Mortgage Applications Decrease in Latest MBA Weekly Survey”

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 4, 2016.

… The Refinance Index decreased 3 percent from the previous week to its lowest level since May 2016. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 11 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since June 2016, 3.77 percent, from 3.75 percent, with points increasing to 0.38 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Mortgage Refinance Index Click on graph for larger image.

The first graph shows the refinance index since 1990.

Refinance activity increased this year since rates declined, however, since rates are up a little recently, refinance activity has declined a little.

Mortgage Purchase IndexThe second graph shows the MBA mortgage purchase index.

The purchase index was “11 percent higher than the same week one year ago”.


Lawler: Selected Operating Statistics from Large Publicly Traded Home Builders

From housing economist Tom Lawler:

Below is a table showing selected operating results of large publicly-traded builders for the quarter ended September 30, 2016.

In aggregate these seven large builders showed combined net home orders of 24,648 last quarter, up 8.4% from the comparable quarter of 2015. Sales per community for these combined builders last quarter were up 6.6% YOY, reflecting very slow growth in the number of active communities.

In stark contrast to these builders’ results, the Census Bureaus’s preliminary estimate of new single-family home sales for the third quarter of 2016 was 147,000 (not seasonally adjusted), up 23.5% from the comparable quarter of 2015.

There are many reasons, of course for large builder results to differ from Census estimates. First, of course, is that market shares can change significantly. Second, Census treats sales cancellations differently than builders do in their financial. Third, the geographic “footprint” of these large builders does not reflect that of the US as a whole. And finally, there may be timing differences between when builders “recognize” a sale and when a sale shows up the Census’ Survey of Construction.

Having said that, however, the latest quarterly results of these large builders shows unusually slow growth relative to the growth in Census’ estimate of new SF home sales. Given that preliminary Census home sales estimates are often revised significantly, in part because Census must “guesstimate” sales of homes for which a permit has not yet been issued, I believe there is a better-than-even change that third-quarter new home sales as estimate by the Census Bureau will be revised downward in the next monthly release.

  Net Orders Settlements Average Closing
Price (000s)
Qtr. Ended: 9/16 9/15 % Chg 9/16 9/15 % Chg 9/16 9/15 % Chg
D.R. Horton 8,744 8,477 3.1% 12,247 10,576 15.8% $297 289 2.9%
PulteGroup 4,775 4,092 16.7% 5,037 4,356 15.6% $374 336 11.3%
NVR 3,477 3,258 6.7% 3,922 3,607 8.7% $484 469 3.2%
CalAtlantic* 3,531 3,238 9.0% 3,680 3,231 13.9% $452 411 10.0%
Meritage Homes 1,737 1,567 10.8% 1,800 1,712 5.1% $409 387 5.7%
MDC Holdings 1,296 1,109 16.9% 1,293 1,080 19.7% $445 421 5.7%
M/I Homes 1,088 988 10.1% 1,148 994 15.5% $365 341 7.1%
SubTotal 24,648 22,729 8.4% 29,127 25,556 14.0% $371 $352 5.5%

*Note: CalAtlantic was formed with the merger of Standard Pacific and Ryland, completed in October 2015. The Q3/2015 statistics for CalAtlantic are pro forma statistics for Standard Pacific and Ryland combined


Las Vegas Real Estate in October: Sales up 5.5% YoY, Inventory down Sharply

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada Housing Market Cools Down in October, GLVAR Housing Statistics for October 2016

The Greater Las Vegas Association of REALTORS® (GLVAR) reported Tuesday that the local housing supply remains tight as Southern Nevada home prices and sales cooled a bit from previous months but remain ahead of last year’s levels.

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in October was 3,225. That was down slightly from September, but up 5.5 percent from 3,057 one year ago. Compared to the same month one year ago, 6.7 percent more homes, and 6.1 percent more condos and townhomes sold in October.

By the end of October, GLVAR reported 7,693 single-family homes listed for sale without any sort of offer. That’s down 29.7 percent from one year ago. For condos and townhomes, the 1,245 properties listed without offers in October represented a 45.8 percent decrease from one year ago.
emphasis added

1) Overall sales were up 5.5% year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago (A very sharp decline in condo inventory).


BLS: Job Openings increased slightly in September

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.5 million on the last business day of September, the U.S. Bureau of Labor Statistics reported today. Hires edged down to 5.1 million and total separations was little changed at 4.9 million. …

The number of quits was little changed in September at 3.1 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private, and increased for government (+36,000).
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for September, the most recent employment report was for October.

Job Openings and Labor Turnover Survey Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs.

Jobs openings decreased in September to 5.486 million from 5.453 million in August.

The number of job openings (yellow) are up 2% year-over-year.

Quits are up 12% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”).

This is another solid report.


NFIB: Small Business Optimism Index increases in October

From the National Federation of Independent Business (NFIB): October 2016 Report: Small Business Economic Trends

The Index of Small Business Optimism rose 0.8 points to 94.9, still in the 94 range that has bound it for the past five months and well below the 42 year average of 98.

Fifty-five percent reported hiring or trying to hire (down 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Twenty-eight percent of all owners reported job openings they could not fill in the current period, up 4 points. This indicates that labor markets remain tight and the unemployment rate will remain steady at what many call “full employment”
emphasis added

Small Business Optimism Index Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 94.9 in October.

This is the highest level this year.


Tuesday: Election Day, Job Openings

A few truths: Trump lies repeatedly, he knows nothing about economics, and he is a disgusting person (his comments were not locker room comments). And his threat to jail his political opponent will be discussed and criticized for centuries.

Back in May, I wrote A Comment on Litmus Test Moments. I gave an example of some litmus test moments (issues that will come back and haunt people if they were on the wrong side – like the housing bubble). I argued that rejecting Trump will be a “litmus test” in the future.

Send a message to the future! It is important that Trump loses and loses badly. You will feel better about yourself in a few years when you can honestly say you didn’t vote for Trump.  It will be even better if you can point to a public post opposing Trump written before the election (twitter, Facebook, blog, etc).  You will thank me later.

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

• At 10:00 AM, Job Openings and Labor Turnover Survey for September from the BLS. Jobs openings decreased in August to 5.443 million from 5.831 million in July. The number of job openings were up 3% year-over-year, and Quits were up 4% year-over-year.

• All day, U.S. Presidential Election. The forecasts of all key analysts and economists assume Ms. Clinton will be the next President (my forecasts also assume a Clinton presidency). So if Trump is elected, expect some market volatility as forecasts are revised.

A beautiful story …


Fed Letter: “Has the Fed Fallen behind the Curve This Year?”

From Fernanda Nechio and Glenn D. Rudebusch at the San Francisco Fed: Has the Fed Fallen behind the Curve This Year?

Last December, monetary policy analysts inside and outside the Fed expected several increases in short-term interest rates this year. Indeed, the median federal funds rate projection in December 2015 by Federal Open Market Committee (FOMC) participants was consistent with four ¼ percentage point hikes in 2016. So far, none of those increases has taken place.

Of course, monetary policy decisions are often described as data-dependent, so as economic conditions change, FOMC projections for the appropriate path of monetary policy adjusts in response. However, as Rudebusch and Williams (2008) note, changes in forward policy guidance can confound observers and whipsaw investors. In fact, some have complained that the lower path for the funds rate this year represents an inexplicable deviation from past policy norms. A reporter described these complaints to Federal Reserve Chair Janet Yellen at the most recent FOMC press conference (Board of Governors 2016b): “Madam Chair, critics of the Federal Reserve have said that you look for any excuse not to hike, that the goalpost constantly moves.” Such critics have accused the Fed of reacting to transitory, episodic factors, such as financial market volatility, in a manner very different from past systematic Fed policy responses to underlying economic fundamentals.

This Economic Letter examines whether the recent revision to the FOMC’s projection of appropriate monetary policy in 2016 can be viewed as a reasonable course correction consistent with past FOMC behavior. We first show that the projected funds rate revision is not large relative to historical forecast errors. Next, we show that a simple interest rate rule that summarizes past Fed policy can account for this year’s revision to the funds rate projection based on recent changes to the FOMC’s assessment of economic conditions.

And the conclusion:

The downward shift to the FOMC’s 2016 funds rate projection was not large by historical standards and appears consistent with past Fed policy behavior in response to evolving economic fundamentals. Therefore, if monetary policy was correctly calibrated at the end of last year, it likely remains so, and the Fed has not fallen behind the curve this year.


Fed Survey: “Banks reported stronger demand for most categories of RRE home-purchase loans”

From the Federal Reserve: The October 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices

Regarding loans to businesses, the October survey results indicated that, on balance, banks left their standards on commercial and industrial (C&I) loans basically unchanged while tightening standards on commercial real estate (CRE) loans over the third quarter of 2016. Regarding the demand for C&I loans, a modest net fraction of domestic banks reported weaker demand from large and middle-market firms, while demand from small firms was little changed, on balance. Regarding the demand for CRE loans, a moderate net fraction of banks reported stronger demand for construction and land development loans, while demand for loans secured by multifamily residential and nonfarm nonresidential properties remained basically unchanged on net.

Regarding loans to households, moderate net fractions of banks reported easing standards on loans eligible for purchase by government-sponsored enterprises (known as GSE-eligible mortgage loans), and modest net fractions of banks reported easing standards on loans categorized as QM jumbo and QM non-jumbo, non-GSE-eligible residential mortgages. The remaining categories of home-purchase loans were little changed on net. Banks also reported that demand for most types of home-purchase loans strengthened over the third quarter on net. Regarding consumer loans, on balance, banks indicated that changes in standards on consumer loans remained basically unchanged, while demand for auto and credit card loans rose.

On net, domestic survey respondents generally indicated that their lending standards for CRE loans of all types tightened during the third quarter.6 In particular, a moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties, whereas significant net fractions of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties.

Regarding the demand for CRE loans, a moderate net fraction of banks reported stronger demand for construction and land development loans, while demand for loans secured by multifamily residential and nonfarm nonresidential properties remained basically unchanged on net.

During the third quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans, while modest net fractions reported easing standards on mortgage loans categorized as QM non-jumbo, non-GSE-eligible residential and QM jumbo residential mortgages. Meanwhile, banks left their lending standards basically unchanged for all other categories of residential real estate (RRE) home-purchase loans on net.

Over the third quarter, banks reported stronger demand for most categories of RRE home-purchase loans except for government and subprime residential mortgages. In particular, significant net fractions of banks reported stronger demand for GSE-eligible residential mortgages. Moderate net fractions of banks reported stronger demand for QM non-jumbo, non-GSE-eligible, QM jumbo, non-QM jumbo, and non-QM non-jumbo residential mortgages. emphasis added


Update: Framing Lumber Prices Up Year-over-year

Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn’t increase as much early in 2014 (more supply, smaller “surge” in demand).

In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.  This decline in 2015 was also probably related to weakness in China.

Prices in 2016 are now up year-over-year.

Lumcber PricesClick on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through early October 2016 (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are up 6% from a year ago, and CME futures are up about 20% year-over-year.