Wednesday, June 21, 2017

Existing home sales rebounded 1.1 percent in May while sales prices reached new high

Existing-home sales rebounded in May following a notable decline in April, and low inventory levels helped propel the median sales price to a new high while pushing down the median days a home is on the market to a new low.


Sunday, June 18, 2017

State of the Rental Market: Growth is Moderating but Long-Term Prospects Very Favorable

While it’s certainly no secret that the multi-family sector has been on a roll over the past few years, there have been some recent signs that its growth trajectory will continue to moderate this year. 

Nonetheless, with an economic expansion in its seventh year and an average of one million new renter households being formed over the past five years, these economic tailwinds should continue to support this sector over the near term. The long-term prognosis is even better, with a recent study concluding a need for 4.6 million new apartments between now and 2030.

For now, overall tenant demand remains strong, especially as more millennials continue to form new households after being delayed due to the Great Recession and paying off student loan debt. Nationally, the homeownership rate fell to a 51-year low of 63 percent last year, and is expected to remain around this level for at least the rest of the year.

Construction of new apartments is also expected to peak this year, especially as over-supply in some high-growth markets is beginning to impact both vacancy rates and rent growth. Mindful of this trend, construction lenders are also being more discreet, critically assessing the experience of developers, double-checking projected returns while acknowledging lower growth in operating income.

In addition, if government proposals for increased infrastructure spending see the light of day, this could mean increased competition for both the materials and labor required for more multi-family supply.

According to recent figures from brokerage Marcus & Millichap, most of the softening is beginning to occur for Class A buildings, both due to an increase in new product as well as historically weak absorption during the fourth quarter of 2016 being pushed into 2017. Nationally, this meant a large bump in Class A vacancy rates to over 6.5 percent. Yet instead of lowering asking rents to fill vacant units, many owners are betting that the strong spring and summer leasing season will mop up the excess supply.

For Class B properties, a slight rise in vacancies was often due to renters opting to make the leap to higher-quality apartments, especially in regions such as the South where the price difference between the two classes is the smallest.  Not surprisingly, the vacancy rate for Class C properties remains the lowest due to the strong demand for affordable housing.

Both Axiometrics and Yardi Matrix -- which regularly survey apartment communities across the country each month – have shown a similar softening in both rent growth and occupancy rates.  According to Axiometrics, although its surveyed properties had rebounded to the benchmark occupancy rate of 95 percent by May 2017, annual effective rent growth has stayed within a fairly narrow band of 2.0 to 2.2 percent over the past six months.

Yardi Matrix, however, showed an annual overall rental rate increase of 1.5 percent for the 12-month period ending in May 2017, down sharply from the 5.3 percent noted a year ago even though it reported an overall occupancy rate of 94.8 percent for April.

As Marcus & Millichap similarly found, this is largely due to a temporary over-supply in Yardi’s “Lifestyle” class, which caters to households who prefer to rent versus owning, and has resulted in flat growth. Meanwhile, low supply and strong demand for “Renter by Necessity” units helped propel their average rents by 2.6 percent over the same time period.

Due to this softening, as well as higher borrowing costs and proposed changes to fiscal policy and the tax code – including a possible end to the popular 1031 tax exchange program – investors have recently pulled back. Preliminary estimates for first quarter 2017 sales suggest a decline of 15 to 20 percent from the same period of 2016, although greater clarity on these policy changes would certainly lead to a rebound in investor interest.

In the longer term, a combination of delayed marriages, an aging population and continued legal immigration will continue to put increasing pressure on new apartment supply, but it’s not just the millennials filling these units. It’s also Baby Boomers and other empty-nesters over 45 who accounted for over half of new renter households over the last decade in search of the flexibility and convenience of apartment living.

With an annual projected demand of 325,000 new units per year through 2030 and an aging housing stock increasingly in need of renovations, there should be very favorable terms for well-financed investors, especially in high-cost and high-growth areas throughout the West and the South.

Friday, June 16, 2017

Industrial production unchanged in May following April boost

Industrial production was unchanged in May following a large increase in April and smaller increases in February and March. At 105.0 percent of its 2012 average, total industrial production in May was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector edged down 0.1 percentage point in May to 76.6 percent, a rate that is 3.3 percentage points below its long-run (1972–2016) average.

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New York Fed: Manufacturing activity rebounds strongly in June

Business activity rebounded strongly in New York State, according to firms responding to the June 2017 Empire State Manufacturing Survey. The headline general business conditions index shot up twenty-one points to 19.8, its highest level in more than two years.

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Philadelphia Fed: Manufacturing activity growth dips in June

Regional manufacturing continues to expand, according to results from the June Manufacturing Business Outlook Survey. The diffusion index for general activity fell from its reading in May but remained positive and continued to reflect growth. Although many of the future indicators also declined, firms continue to expect growth over the next six months. About one-third of the firms expect to add to their payrolls through the end of the year.

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Consumer sentiment dips sharply in preliminary June survey

The modest early June drop of 2.6 points in the Sentiment Index masks a much larger decline since June 8th. Prior to that date the Sentiment Index had averaged 97.7, but since June 8th, the Index fell to 86.7, a decline of 11.0 points. While this break corresponds with James Comey's testimony, only a few consumers spontaneously referred to him or his testimony when asked to explain their views.

The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans.

Fortunately, a strong job market, improved household income and wealth have provided a financial buffer against rising uncertainties. Nonetheless, consumers have become less optimistic about the future course of the domestic economy.

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May building permits dipped 4.9 percent from April and 0.8 percent year-on-year

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,168,000. This is 4.9 percent below the revised April rate of 1,228,000 and is 0.8 percent below the May 2016 rate of 1,178,000.

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May housing starts fell for third straight month to eight-month low

U.S. homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly.  Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,092,000. This is 5.5 percent below the revised April estimate of 1,156,000 and is 2.4 percent below the May 2016 rate of 1,119,000.

Thursday, June 15, 2017

Initial unemployment claims fall by 8,000 in latest report

In the week ending June 10, initial unemployment claims were 237,000, a decrease of 8,000 from the previous week's unrevised level of 245,000. The 4-week moving average was 243,000, an increase of 1,000 from the previous week's unrevised average of 242,000.

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Mortgage applications rise 2.8 percent in latest survey

The Market Composite Index increased 2.8 percent on a seasonally adjusted basis from one week earlier, with purchase loans rising three percent and refinances jumping nine percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 4.13 percent.

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Business inventories fell 0.2 percent in April, reversing March's gain

U.S. business inventories fell 0.2 percent in April, recording their biggest drop in six months, which could temper expectations that inventory investment would support economic growth in the second quarter.

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NAHB's Housing Market Index dips two points in June

Builder confidence in the market for newly-built single-family homes weakened slightly in June, down two points to a level of 67 from a downwardly revised May reading of 69 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). All three HMI components posted losses in June but remain at healthy levels.

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Wednesday, June 14, 2017

Federal Reserve opts to hike key interest rate another 1/4 point

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

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CPI slipped 0.1 percent in May, up 1.9 percent year-on-year

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May - mostly due to lower energy costs -- but rose 1.9 percent over the last 12 months.  The index for all items less food and energy rose 0.1 percent in May and 1.7 percent over the past 12 months.

Producer Price Index flat in May, up 2.4 percent year-on-year

The Producer Price Index for final demand was unchanged in May but increased 2.4 percent for the 12 months ended in May. Prices for final demand less foods, energy, and trade services fell 0.1 percent in May, the first decline since a similar 0.1-percent decrease in May 2016, but was up 2.1 percent over the previous 12 months.


May Small Business Optimism Index remained at historically high level

The Index for May matched its strong performance in April of 104.5. That means the Index has been at a historically high level for six straight months. Five of the Index components posted a gain, four declined, and one remained unchanged.


May retail sales posted biggest drop since January 2016

U.S. retail sales recorded their biggest drop of 0.3 percent in more than a year in May amid declining purchases of motor vehicles and discretionary spending.


Friday, June 9, 2017

May Employment Trends Index up 6.4 percent year-on-year

While employment numbers have shown some softness in the past three months, there is no slowdown visible in the Employment Trends Index, suggesting solid job growth over the summer. Employment will likely grow fast enough to continue tightening the labor market.

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Bloomberg Consumer Comfort Index dips in latest survey

The latest reading, the first decline in four weeks, remains consistent with projections for a rebound in growth this quarter. Even with the drop in the index of the buying climate, the measure remains above this year's average.

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April wholesale sales fell 0.4 percent from March but still up 7.3 percent year-on-year

April 2017 sales of merchant wholesalers fell 0.4 percent from the revised March level, but were up 7.3 percent from the April 2016 level.


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Thursday, June 8, 2017

Initial unemployment claims fall by 10,000 in latest report

In the week ending June 3, initial unemployment claims were 245,000, a decrease of 10,000 from the previous week's revised level. The 4-week moving average was 242,000, an increase of 2,250 from the previous week's revised average.

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Mortgage loan applications rise 7.1 percent in latest survey as rates dip

The Market Composite Index increased 7.1 percent on a seasonally adjusted basis from one week earlier, with purchase loans rising 10 percent and refinances up 3 percent. The average contract interest rate for 30-year fixed-rate mortgages decreased to its lowest level since November 2016, 4.14 percent.

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Consumer credit use growth slowed sharply in April

Consumer borrowing decelerated in April to the smallest increase in almost six years, suggesting an expected rebound in spending in the second quarter may not be as robust as hoped. Total consumer credit rose $8.2 billion in April to a seasonally adjusted $3.82 trillion, posting an annual growth rate of 2.6%.

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Wednesday, June 7, 2017

U.S. Economic Confidence Index fell to six-month low in May, but still well into positive territory

Though still historically high, Americans' confidence in the economy fell to a six-month low in May, largely dragged down by Democrats' worsening economic attitudes. Gallup's U.S. Economic Confidence Index averaged a score of +3 in May, down slightly from April (+5) but eight points below January's record monthly high (+11).

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Job Creation Index rebounded to +37 in May, continuing 15-month streak of +30 or higher

Gallup's Job Creation Index was +37 in May, tied with the record high found in March. This marks 15 straight months of the index reaching +30 or higher.

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Job openings rose 4.5 percent to series high of 6.0 million in April

 The number of job openings increased 4.5 percent to a series high of 6.0 million by the last business day of April. Over the month, hires decreased to 5.1 million and separations edged down to 5.0 million.

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April CoreLogic Home Price Index up 1.6 percent from March and 6.9 percent year-on-year

Home prices nationwide, including distressed sales, increased year over year by 6.9 percent in April 2017 compared with April 2016 and increased month over month by 1.6 percent in April 2017 compared with March 2017, according to the CoreLogic HPI.

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Monday, June 5, 2017

Service sector index dipped 0.6 percent in May, but new job growth still strong

The NMI® registered 56.9 percent, which is 0.6 percentage point lower than the April reading of 57.5 percent. Although the non-manufacturing sector's growth rate dipped in May, the sector continues to reflect strength, buoyed by the strong rate of growth in the Employment Index.


Manufacturing sector index mostly flat in May; pricing pressure slowing

The May PMI® registered 54.9 percent, an increase of 0.1 percentage point from the April reading of 54.8 percent. The slowing of pricing pressure, especially in basic commodities, should have a positive impact on margins and buying policies as this moderation moves up the value chain.

Unit labor costs rose 2.2 percent in 1Q 2017 due entirely to higher hourly compensation

Unit labor costs in the nonfarm business sector increased 2.2 percent in the first quarter of 2017, reflecting a 2.2-percent increase in hourly compensation; productivity was unchanged. Unit labor costs increased 1.1 percent over the last four quarters.

Labor productivity unchanged in 1Q 2017 but up 1.2 percent year-on-year

Nonfarm business sector labor productivity was unchanged during the first quarter of 2017, as both output and hours worked increased 1.7 percent. From the first quarter of 2016 to the first quarter of 2017, productivity increased 1.2 percent, reflecting a 2.5-percent increase in output and a 1.3-percent increase in hours worked.

Factory goods orders slipped in April after five months of increases

Factory goods orders dropped 0.2 percent in April, after an upwardly revised 1.0 percent increase in March. This was the first decline in five months, but still up 4.4 percent year-on-year.

Friday, June 2, 2017

Payroll employment grew by 138,000 in May; unemployment rate at 4.3 percent

Total nonfarm payroll employment increased by 138,000 in May, and the unemployment rate was little changed at 4.3 percent.

Since January, the unemployment rate has declined by 0.5 percentage point, and the number of unemployed has decreased by 774,000.

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Thursday, June 1, 2017

Manufacturing index rises slightly in May, price pressures slowing

The May PMI® registered 54.9 percent, an increase of 0.1 percentage point from the April reading of 54.8 percent. Comments from the panel generally reflect stable to growing business conditions, with new orders, employment and inventories of raw materials all growing in May compared to April. The slowing of pricing pressure, especially in basic commodities, should have a positive impact on margins and buying policies as this moderation moves up the value chain.

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Initial unemployment claims rise 13,000 in latest report

In the week ending May 27, initial unemployment claims were 248,000, an increase of 13,000 from the previous week's revised level. The 4-week moving average was 238,000, an increase of 2,500 from the previous week's revised average.


Planned job cuts rose sharply in May, but still down 28 percent YTD from 2016

The number of workforce reductions announced by US-based employers rose sharply in May, as planned job cuts totaled 51,692 for the month, although nearly 40 percent of those job cuts were announced by Ford Motor Company.

Employers have announced a total of 214,495 job cuts so far this year, down 28 percent year-on-year.


Private sector employment rose sharply to 253,000 jobs in May

ADP: Private sector employment increased by 253,000 jobs from April to May. This compares to 174,000 jobs the previous month and 58,000 jobs during May of 2016.

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Construction spending dipped 1.4 percent in April but still up 5.8 percent YTD from 2016

Spending on construction sagged in April as a strong start to the year started to falter, falling 1.4 percent from March.  However, a 0.2% decline in March was revised to a 1.1% monthly gain. Spending so far in 2017 is 5.8% higher than in the same period a year ago.

Wednesday, May 31, 2017

Online job vacancies rose by nearly 196,000 in May

Online advertised vacancies increased 195,600 to 4,809,200 in May, according to The Conference Board Help Wanted OnLine® (HWOL) Data Series.

The April supply/demand rate stands at 1.53 unemployed for each advertised vacancy, with a total of 2.4 million more unemployed workers than the number of advertised vacancies. The number of unemployed was approximately 7.1 million in April.

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Chicago Business Barometer Up 1.1 Points to highest level since November 2014

The MNI Chicago Business Barometer increased to 59.4 in May from 58.3 in April, the highest level since November 2014.

Optimism among firms about business conditions rose for the fourth consecutive month. Four of the five Barometer components led May’s increase, with only New Orders receding.

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Federal Reserve Beige Book: Modest economic growth, but some regional weaknesses

The Beige Book provided a generally upbeat view of growth in the U.S. in the period from early April through late May. The report appears to strengthen the case the Fed will raise a key short-term interest rate again at its next big meeting in two weeks.  Although the economy expanded at “modest to moderate” pace through late May, growth frayed in some regions, raising questions about whether the central bank will reassess its strategy after an expected increase in interest rates in mid-June.

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Mortgage applications fall 3.4 percent in latest survey, rates flat

The Market Composite Index, a measure of mortgage loan application volume, decreased 3.4 percent on a seasonally adjusted basis from one week earlier, with purchase loans falling one percent and refinances down by four percent.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.17 percent.

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April pending home sales index posts first year-over-year decline since December

The Pending Home Sales Index decreased 1.3 percent to 109.8 in April from a downwardly revised 111.3 in March. After last month's decline, the index is now 3.3 percent below a year ago, which is the first year-over-year decline since last December and the largest since June 2014 (7.1 percent).

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Tuesday, May 30, 2017

Initial estimate: Corporate profits dipped sharply in 1Q 2017

Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) decreased $40.3 billion in the first quarter, in contrast to an increase of $11.2 billion in the fourth quarter of 2016.

Texas Manufacturing Outlook Survey rose in May to highest level in three years

Texas factory activity increased at a faster pace in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The index, a key measure of state manufacturing conditions, moved up eight points to 23.3, reaching its highest level since April 2014.

State Street Global Investor Confidence Index rose 5.1 points in May

The State Street Global ICI increased to 102.5, up 5.1 points from April’s revised reading of 97.4. The improvement in sentiment was driven by an increase in the North American ICI from 95.1 to 104.1.

“After 10 consecutive months of readings below 100, Global investor confidence is finally picking up steam,” commented Rajeev Bhargava, managing director and head of Investor Behavior Research, State Street Associates. “Markets continue to anticipate a very gradual course for the Federal Reserve rate hikes, and with hopes for increased infrastructure spending and tax reforms, the North American ICI readings are resonating with the uptick in risk appetite.”

Consumer Confidence Index dipped again in May

The Conference Board Consumer Confidence Index, which had decreased in April, declined slightly in May. The Index now stands at 117.9 (1985=100), down from 119.4 in April. The Present Situation Index increased marginally from 140.3 to 140.7, while the Expectations Index declined from 105.4 last month to 102.6 in May.

“Consumer confidence decreased slightly in May, following a moderate decline in April,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “However, consumers’ assessment of present-day conditions held steady, suggesting little change in overall economic conditions. Looking ahead, consumers were somewhat less upbeat than in April, but overall remain optimistic that the economy will continue expanding into the summer months.”

Case-Shiller Index sets 33-month high in March, up 5.8 percent year-on-year

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.8% annual gain in March, up from 5.7% last month and setting a 33-month high.

After seasonal adjustment, the National Index recorded a 0.3% month-over-month increase.

Personal income and spending both rose 0.4 percent in April

Personal income increased $58.4 billion (0.4 percent) in April while disposable personal income (DPI) increased $56.5 billion (0.4 percent) and personal consumption expenditures (PCE) increased $53.2 billion (0.4 percent).


The PCE price index increased 0.2 percent from March and 1.7 percent year-on-year. Excluding food and energy, the PCE price index increased 0.2 percent and 1.5 percent year-on-year.

Friday, May 26, 2017

May consumer sentiment continued high plateau but partisan divide remains

According to the University of Michigan's monthly survey, consumer sentiment has continued to move along the high plateau established following Trump’s election. The May 2017 figure was virtually unchanged from the April reading, and nearly identical with the December to May average of 97.3.

Moreover, the partisan divide between Democrats and Republicans has also remained largely unchanged, with the first expecting a recession and the other more robust economic growth.
Despite the expected bounce back in spending in the current quarter, personal consumption is expected to advance by 2.3% in 2017, although this is based on averages across the political divide, which has never been as extreme as it is currently.

First quarter GDP growth revised up from 0.7 to 1.2 percent in second estimate

Real gross domestic product (GDP) increased at an annual rate of 1.2 percent in the first quarter of 2017 according to the "second" estimate released by the Bureau of Economic Analysis. In the advance estimate, the increase in real GDP was 0.7 percent.  In the fourth quarter, real GDP increased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the
"advance" estimate issued last month.

With this second estimate for the first quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in personal consumption expenditures (PCE) were larger and the decrease in state and local government spending was smaller than previously estimated. These revisions were partly offset by a larger decrease in private inventory investment.

Mortgage applications rise 4.4 percent in latest survey as rates drop to lowest level since November 2016

The Market Composite Index increased 4.4 percent on a seasonally adjusted basis from one week earlier, with purchase loans falling 1 percent and refinances rising 11 percent.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to its lowest level since November 2016, 4.17 percent.

Federal Reserve meeting minutes suggest another rate hike possible in June

Federal Reserve officials expected at their policy meeting this month that it would "soon be appropriate" to raise short-term interest rates, a signal the U.S. central bank could move in June at its next gathering.

The Fed also moved toward a consensus on a proposal to start gradually shrinking its $4.5 trillion in holdings of Treasury and mortgage securities later in the year.

Thursday, May 25, 2017

Initial unemployment claims rise 1,000 in latest report but 4-week average down to lowest level since April 1973

In the week ending May 20, initial unemployment claims were 234,000, an increase of 1,000 from the previous week's revised level.

The 4-week moving average was 235,250, a decrease of 5,750 from the previous week's revised average. This is the lowest level for this average since April 14, 1973 when it was 232,750. 

FHFA: House prices up 1.4 percent in 1Q2017 and 6.0 percent year-on-year

U.S. house prices rose 1.4 percent in the first quarter of 2017 according to the Federal Housing Finance Agency (FHFA) House Price Index.

House prices rose 6.0 percent from the first quarter of 2016 to the first quarter of 2017.

FHFA's seasonally adjusted monthly index for March was up 0.6 percent from February.

Tuesday, May 23, 2017

Richmond Fed's Survey of Manufacturing Activity slips in May

Manufacturers in the Fifth District were somewhat less upbeat in May than in the prior three months, according to the latest survey by the Federal Reserve Bank of Richmond.

The index for shipments and the index for new orders decreased notably, with the shipments index falling to slightly below 0. The index for employment was relatively flat, but the decline in the other two indexes resulted in a decline in the composite index from 20 in April to 1 in May. The majority of firms continued to report higher wages, but more firms reported a decline in the average workweek than reported an increase.


Looking six months ahead, manufacturing executives remained generally optimistic, although the only index to increase was expected capital expenditures.

Flash U.S. Composite Output Index rebounds modestly in May

The seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index revealed a modest rebound in private sector business activity growth in May.

At 53.9, up from 53.2 in April, the headline index pointed to the strongest upturn in U.S. private sector output since February. Faster business activity growth was driven by the service sector (‘flash’ index at 54.0 in May), which more than offset the weakest rise in manufacturing production since September 2016 (‘flash’ output index at 53.3).


April new home sales dipped 11.4 percent from March's 10-year high but still slightly above year-ago levels

New Home Sales

Sales of new single-family houses in April 2017 were at a seasonally adjusted annual rate of 569,000. This is 11.4 percent below the revised March rate of 642,000, but is 0.5 percent above the April 2016 estimate of 566,000.

Sales Price

The median sales price of new houses sold in April 2017 was $309,200. The average sales price was $368,300.

For Sale Inventory and Months’ Supply

The seasonally-adjusted estimate of new houses for sale at the end of April was 268,000. This represents a supply of 5.7 months at the current sales rate.

Monday, May 22, 2017

Philadelphia Fed Manufacturing Business Outlook Survey rebounded sharply in May

Results from the May Manufacturing Business Outlook Survey suggest that regional manufacturing activity continued to expand this month, rising from 22.0 to 38.8 Although most of the survey's future indicators fell this month, the readings suggest that most firms still expect growth to continue over the next six months.

Chicago Fed National Activity Index rose to 0.49 in April, highest since 2014

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.49 in April from +0.07 in March. Two of the four broad categories of indicators that make up the index increased from March, and only one category made a negative contribution to the index in April. The index’s three-month moving average, CFNAI-MA3, increased to +0.23 in April from a neutral reading in March.

Thursday, May 18, 2017

Initial unemployment claims fall 4,000 in latest report

In the week ending May 13, initial unemployment claims were 232,000, a decrease of 4,000 from the previous week's unrevised level of 236,000.

The 4-week moving average was 240,750, a decrease of 2,750 from the previous week's unrevised average of 243,500.

Mortgage applications fall 4.1 percent in latest survey, rates remain flat

The Market Composite Index decreased 4.1 percent on a seasonally adjusted basis from one week earlier, with purchase loans falling 3 percent and refinances dipping 4 percent.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 4.23 percent.

Leading Economic Index rose again in April

The Leading Economic Index for the U.S. increased 0.3 percent in April to 126.9 (2010 = 100), following a 0.3 percent increase in March, and a 0.5 percent increase in February.

While the majority of leading indicators have been contributing positively in recent months, housing permits followed by average workweek in manufacturing have been the sources of weakness among the U.S. LEI components.

Tuesday, May 16, 2017

April industrial production rose for third straight month across all major industries

Industrial production advanced 1.0 percent in April for its third consecutive monthly increase and its largest gain since February 2014, largely as a result of widespread increases among its major industries.

At 105.1 percent of its 2012 average, total industrial production in April was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in April to 76.7 percent, a rate that is 3.2 percentage points below its long-run (1972–2016) average.

E-commerce sales growth continued to outpace total retail sales growth in 1Q 2017

U.S. retail e-commerce sales for the first quarter of 2017 rose 4.1 percent from the fourth quarter of 2016.  At the same time, total retail sales for the first quarter of 2017 rose 1.0 percent.

Comparing year-on-year, the first quarter 2017 e-commerce estimate increased 14.7 percent from the first quarter of 2016 while total retail sales increased 5.1 percent in the same period.

E-commerce sales in the first quarter of 2017 accounted for 8.5 percent of total sales, up from 8.2 percent the previous quarter and 7.8 year-on-year.

April building permits fall 2.5 percent from March but up 5.7 percent year-on-year

Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,229,000. This is 2.5 percent below the revised March rate of 1,260,000, but is 5.7
percent above the April 2016 rate of 1,163,000.

April housing starts dip 2.6 percent from March but up 0.7 percent year-on-year

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,172,000. This is 2.6 percent below the revised March estimate of 1,203,000, but is 0.7 percent above the April 2016 rate of 1,164,000.

Monday, May 15, 2017

NAHB Housing Market Index rises to 70 in May, second-highest rating since the recession

In a further sign that the housing market continues to strengthen, builder confidence in the market for newly-built single-family homes rose two points in May to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the second highest HMI reading since the downturn.

Two of the three HMI components registered gains in May. The index charting sales expectations in the next six months jumped four points to 79 while the index gauging current sales conditions increased two points to 76. Meanwhile, the component measuring buyer traffic edged one point down to 51.

Friday, May 12, 2017

Consumer sentiment rises to 97.7 in May while partisan divide narrows

Consumer sentiment remained on the high plateau established following Trump's election, with the early May figure nearly identical with the December to May average of 97.4.

The recent stability in consumer sentiment, however, masks two important underlying shifts in the components as well as in the partisan divide. More favorable income gains and low inflation meant that consumers held the most favorable real income expectations in a dozen years. Buying plans, however, were mixed: household durables rose to a decade peak, while vehicle buying conditions slipped to a three year low.

Home buying conditions were viewed less favorably, but were offset by the most favorable views about home selling in more than a decade.

The partisan difference in the Expectations Index is still huge, but the gap between Democrats and Republicans narrowed slightly to 55 Index points from 65 three months ago, mainly due to Democrats expressing diminished fears of an immediate recession and lessened concerns about personal financial setbacks.

Retail sales rebounded 0.4 percent in April, with online sales up 1.4 percent

Americans stepped up their spending at auto dealers, hardware stores and e-commerce outlets as retail sales rebounded from two sluggish months, with retail sales rising 0.4 percent in April.  Sales had ticked up just 0.1 percent in March and fell in February.

The rise also indicates that the struggles of large retail chains, such as Macy's and JC Penney's, reflect changes in consumer buying patterns rather than broader economic weakness. Sales at department stores fell 0.2 percent. Yet a category that includes online retailers reported sales growth of 1.4 percent, the strongest of any group.

CPI rose 0.2 percent in April, up 2.2 percent over past year

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April. Over the last 12 months, the all items index rose 2.2 percent before seasonal adjustment.

The index for all items less food and energy rose 0.1 percent in April after declining in March.  The index for all items less food and energy rose 1.9 percent over the last 12 months; this compares to a 1.8 percent average annual increase over the past decade.

Thursday, May 11, 2017

Initial unemployment claims dip 2,000 in latest report

In the week ending May 6, initial unemployment claims were 236,000, a decrease of 2,000 from the previous week's unrevised level of 238,000. The 4-week moving average was 243,500, an increase of 500 from the previous week's unrevised average of 243,000.

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Bloomberg Consumer Comfort Index dips slightly in May

While consumer comfort remains near a 15-year high, Americans were a bit rattled about the prospects for the U.S. economy in the latest week, amid a recent report that first-quarter growth was the weakest in three years. Still, the index is on a healthy run, remaining above 49 for 11 straight weeks -- the longest such streak since September 2001.

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May Business Inflation Expectations: Up 2.0 percent over the next 12 months and 1.8 percent over past year

Respondents to the Atlanta Fed Survey indicated that, on average, they expect unit costs to rise 2.0 percent over the next 12 months. Inflation uncertainty increased slightly to 2.2 percent. Firms also report that, compared to this time last year, their unit costs are up 1.8 percent.

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Producer Price Index rose 0.5 percent in April, up 2.5 percent year-on-year

The Producer Price Index for final demand advanced 0.5 percent in April. On an unadjusted basis, the final demand index rose 2.5 percent for the 12 months ended April 2017, the largest increase since moving up 2.8 percent for the 12 months ended February 2012.

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First Quarter 2017 Economic Update: Some Mixed Signals but Real Estate Remains Strong

This seems to be an odd time for the U.S. economy, which has remained somewhat sluggish since the beginning of the year. This compares to a rise of nearly eight percent in the S&P 500 since January 1st and a seller’s market for housing in which there simply isn’t enough inventory to satiate several years of pent-up demand.

Meanwhile, both business and consumer confidence – which have been at record levels lately due to promised changes in our byzantine tax code and reductions in business regulations – are starting to slightly wane due to a political system still mostly stuck in neutral.

GDP growth, which averaged just 1.6 percent in 2016 --- the lowest since 2011 – fell further to an initial estimate of 0.7 percent during the first quarter of 2017, due largely to consumers, businesses and state and local governments tightening their spending. However, not only is it likely that this estimate will rise with the second and third iterations, but, as of mid-May, analysts are forecasting growth in the second quarter at 3.6 percent as investments in fixed assets rebound. Moreover, the Federal Reserve’s Beige Book showed residential construction growth accelerating through the end of March as non-residential construction remained strong.

Job growth, which rebounded by 211,000 in April, started out very strong in January and February – ranging from 216,000 to 232,000 -- before dipping sharply to just 79,000 in March. However, given April’s official unemployment rate dipping to 4.4 percent – a 10-year low – March’s performance is widely being viewed as a temporary dip due to poor mid-month weather, fewer construction jobs being added, and a dip in retail employment as that sector continues to battle against online competitors.

In terms of inflation, while the Consumer Price Index (less food and energy) dipped 0.1 percent in March, it has still risen by 2.0 percent over the past year, or even with the target set by the Federal Reserve. The Producer Price Index reported similar trends, dipping 0.1 percent in March but up 2.3 percent over the past 12 months.

Not surprisingly, due to this somewhat murky collection of jobs and inflation data, in its most recent May meeting the Fed delayed raising interest rates until the labor market has stabilized further and inflation needs some more taming.

If there is one area which is not murky, it is confidence. The University of Michigan’s Consumer Sentiment Survey has been on a high plateau since President Trump’s election, settling at around 97 in March and April. Nonetheless, a new trend in the survey has revealed stark differences based on political beliefs, with optimists in one corner and pessimists in the other, especially in terms of expectations for household incomes, inflation and unemployment. These partisan extremes can in turn cause instability and impact consumer spending.

Looking specifically at the building industry, builder confidence has remained at well over 60 since last September, and has averaged 68 since the beginning of 2017. In tandem with this confidence, construction spending rose for five straight months before slipping 0.2 percent in March. Although housing starts dipped 6.8 percent in March, they were still up over nine percent year-on-year. And, while March building permits rose a moderate 3.6 percent from February, they’re up by a robust 17 percent over the past year.

Similarly, sales of new single-family homes rose by 5.8 percent in March to an annual rate of 621,000 units, or a year-on-year increase of nearly 16 percent. Median new home sales prices rose 1.2 percent year-on-year to $315,000, but are still down from last year’s peak of $332,700 in December. At current sales rates, existing inventory would take 5.2 months to sell versus 5.5 months a year ago.

For existing homes, sales rose 4.4 percent in March to an annual rate of 5.7 million, which is also up nearly six percent from a year ago and marked the strongest month of sales since February of 2007. Median existing home prices rose close to seven percent year-on-year to $236,400, for the 61st consecutive month of year-over-year increases. Although September inventory rose moderately to over 1.8 million homes to a still-brief timeline of just 3.8 months, it has fallen year-over-year for 22 consecutive months.

Looking ahead to 2017 versus 2016, the NAHB is projecting annual single-family starts to rise by 9.0 percent and multi-family starts to decline by 1.6 percent.In addition, look for a rise of 12.1 percent for new single-family homes to 626,000, and existing homes sales to increase 3.2 percent to 4.98 million.

Wednesday, May 10, 2017

Mortgage loan applications rise 2.4 percent in most recent survey as rates remain flat

The Market Composite Index increased 2.4 percent on a seasonally adjusted basis from one week earlier, with purchase loans rising 2 percent and refinances up 3 percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 4.23 percent.

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Tuesday, May 9, 2017

Job openings rose 1.1 percent in March

The number of job openings was rose 1.1 percent to 5.7 million on the last business day of March. Over the month, hires rose 0.2 percent to 5.3 million, and separations rose 1.6 percent to 5.1 million, respectively.

Small Business Optimism Index slips in April but still at historically high levels

The Index dipped 0.2 points April, settling at 104.5. April was the sixth straight month for historically high optimism, a hot streak not seen since 1983. Five of the Index components posted a gain, reaching levels not seen since before the previous administration. Three of the components declined, and two were unchanged. Nearly all of the slight decline was attributable to an 8-point plunge in expected business conditions.


Friday, May 5, 2017

Consumer credit jumped 5.2 percent in March

Consumer borrowing rose at a solid 5.2% annual rate in March, suggesting the consumer has not completely retrenched.  Although the U.S. economy got off to a slow start this year as consumers dialed back spending, the Federal Reserve said earlier this week that the slump in first quarter growth was temporary.

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April job growth rebounded to 211,000, unemployment rate at 4.4 percent

Total nonfarm payroll employment increased by 211,000 in April, and the unemployment rate was little changed at 4.4 percent. Job gains occurred in leisure and hospitality, health care and social assistance, financial activities, and mining. Over the year, the unemployment rate has declined by 0.6 percentage point, and the number of unemployed has fallen by 854,000.

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Thursday, May 4, 2017

Initial unemployment claims drop 19,000 in most recent report

In the week ending April 29, initial unemployment claims were 238,000, a decrease of 19,000 from the previous week's unrevised level of 257,000. The 4-week moving average was 243,000, an increase of 750 from the previous week's unrevised average of 242,250.

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Mortgage loan applications slip 0.1 percent in latest survey as rates rise slightly

The Market Composite Index decreased 0.1 percent on a seasonally adjusted basis from one week earlier, with purchase loans rising four percent but refinances falling five percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 4.23 percent.

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Gallup Good Jobs Rate slipped to 44.7 percent in April

The U.S. Gallup Good Jobs Rate fell to 44.7% in April, down from 45.1% in March, but higher than the 44.4% measured in February. The current GGJ rate is slightly lower than the 44.9% recorded in April 2016.

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Labor productivity rose at 0.6 percent annual rate in 1Q 2017

Nonfarm business sector labor productivity decreased at a 0.6-percent annual rate during the first quarter of 2017, as output increased 1.0 percent and hours worked increased 1.6 percent.

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April planned job cuts down 15 percent from March and 43 percent year-on-year

US-based employers announced workforce reductions totaling 36,602 during the month, down 15 percent from March and 43 percent lower than the 64,141 recorded in April 2016.  Of these cuts, 11,669 were in the retail sector, the highest total among all industries.

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Federal Reserve opts to keep interest rates unchanged in latest meeting

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 3/4 to 1 percent.

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Wednesday, May 3, 2017

Auto sales fell for fourth straight month in April

Car sales in the US slowed significantly in April, compounding several months of declines that suggest the industry's record sales streak may be behind it. It was the fourth straight month of decline for the industry.

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Gallup's Economic Confidence Index dipped to +5 in April, but positive streak continued

Gallup's U.S. Economic Confidence Index averaged +5 in April, down four points from March's average. Despite the dip, confidence has been in positive territory for six consecutive months -- the longest such streak in the past nine years.

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April service sector index rose 2.3 percentage points to 55.2

The NMI registered 57.5 percent, which is 2.3 percentage points higher than the March reading of 55.2 percent. In April the non-manufacturing sector reflected strong growth after a slowing in the rate from the previous month.

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April manufacturing sector index fell 2.4 percentage points in April to 54.8

The April PMI registered 54.8 percent, a decrease of 2.4 percentage points from the March reading of 57.2 percent. Comments from the panel generally reflect stable to growing business conditions; with new orders, production, employment and inventories of raw materials all growing in April over March.

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Gallup Job Creation Index dips to 36 in April, one point from record high in March

The Gallup Job Creation Index was at +36 in April, one point off the record high of +37 in March. The Midwest led the regions at +42, the first time any region has topped +40 in the nine-year history of the index.

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ADP: Private sector job growth dipped to 177,000 in April

Private-sector employment increased by 177,000 from March to April, on a seasonally adjusted basis. This compares to 255,000 last month and 109,000 year-over-year, and is the lowest level since October 2016.

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Saturday, April 15, 2017

The Persistency of Architecture: Many Classic Ideas are Always in Style


On a recent trip to Italy to visit family living overseas, it was hard not to acknowledge the treasure trove of building methods and techniques started by the Greeks and Etruscans, refined by the Romans, and copied ever since throughout the world. Even in the residential subdivisions and urban infill projects of today, a variety of architectural elements and exterior elevations continue to borrow from ideas of the past.

After inventing a cold-method process for creating concrete around 200 B.C., the Romans went on to build roads, temples and palaces, many of which, when excavated, were still partly standing up to 2,000 years later or more.

But it was probably their expertise with arch-based structures which allowed them to expand, strengthen and defend their territory to a much larger empire with the use of bridges, aqueducts and gates. Due to the way in which arches transfer forces to the surrounding foundation, such structures tend to both strong and long-lasting, which is why you’ll still see remnants of arch-based aqueducts throughout Italy today.

These arches soon morphed into vault-type roofing and then domes, which, after being first used in the Roman marketplace, were eventually instrumental in creating many large interior spaces, including halls, temples and Catholic basilicas still standing today. Over time, other influences, especially from the Ottoman Empire, also imprinted their own design cues on the practical arch.

While our large public spaces of today often include obvious design cues from the Greeks and Romans with their rows of high columns and detailed porticos, the influence of the ancient, Renaissance, Baroque and Colonial periods of history continue to be used in many new homes today. 

In the U.S., because the country was colonized by so many different types of Europeans, colonial architecture can also include design cues from Germany, the Netherlands, Spain and France. When the industrial age made mass production and transportation more affordable over rail lines, various elaborate Victorian homes sprung up in even more modest neighborhoods.

For a luxury builder such as Toll Bros. today, which can invest in more exterior details than a entry-level builder, it’s not surprising to see such classic elevation choices in California as the Mediterranean, with its finished columns supporting multiple arches and accompanied by balustrade balconies. Or the Italianate, with a more under-stated, Baroque elevation characterized by several large stone walls in the front, an arched entryway, and a two-story foyer capped by a small dome.  Or even the Tuscan, featuring an earthier look including a wall of natural-looking stone but keeping the arched entry and the domed foyer.

In other locations such as suburban Pennyslvania, however, builders such as Toll pull from a more recent palette for their estate homes on one acre of more.  In this case, buyers might opt for the colonial-esque Williamsburg, with an elevation of small bricks with multiple gabled roofs. Or perhaps the Federal, which offers a similar, conservative look but with toned-down brick colors.Or even the Farmhouse, which evokes more of a Prairie-home look with a wooden cladding exterior, multiple gables and a covered porch.

Not surprisingly, most of these architectural design choices are generally matched to the local climate, but builders haven’t always brought in the outside as much as they do today. This is certainly good to see, as the ancient homes of Pompei and Herculaneum – both victims of the infamous Mt. Vesuvius eruption of AD79 --were often quite large, and almost always included a central, unroofed space including gardens, fountains and cisterns around which the rest of the home was built.

I think what struck me most about seeing these ancient communities was just how well these people were living two millennia ago without modern conveniences such as electricity, indoor plumbing in the home (that was generally reserved for the public bath houses) or central heating. Once the Roman Empire collapsed in the late 400s AD – and other than some clever inventions by royals in Britain and France --- it wasn’t until 1829 that we saw the re-introduction of commercial indoor plumbing, in this case at Boston’s Tremont Hotel.

And, whereas the City of Rome was the first city to boast one million residents as early as 133 B.C., it wasn’t until 1810 that the City of London was able to match those numbers. In those intervening years of the Dark Ages, the Renaissance and the Industrial Revolution, many great ideas about home building and urban planning were lost to history. It’s nice to see them being appreciated again.



Monday, March 20, 2017

The Future Will be Automated: How Will That Impact Housing?

During the year leading up to the last Presidential election, we heard a lot about bringing back jobs to the United States.  But what we didn’t hear much about was the increasingly important role that automation and artificial intelligence (AI) will have on the country’s job base, especially its potential impact on the housing market.

At first glance, the numbers are sobering:  According to former President Obama’s final Economic Report of the President to Congress dated February 2016, up to 83 percent of jobs which pay under $20 per hour would be the first job dominoes to eventually fall to automation.

While most of these types of jobs wouldn’t qualify workers to purchase a median-priced home in most areas, up to 31 percent of jobs paying $20 to $40 per hour will be next, and these are the types of jobs which allow many workers to grab that first rung of the home buying ladder.  However, for those workers earning more than $40 per hour – typically the main draw for move-up housing -- their focus on creativity, innovation and often complex communications will mean that just four percent of their jobs would be easily automated away.

In fact, many economists have argued that it is automation, not outsourcing to other countries, which has led to the loss of most manufacturing jobs over the last few decades, especially in the auto industry.

In the short run, the job market seems to be booming, with private employment growth rising in February 2017 at the fastest rate since April 2014, with nearly 300,000 new positions created.

Yet according to a Pew Research poll conducted in 2014, about half of the technology experts contacted expressed concern that emerging technology will displace more jobs that it will create as soon as 2025. Still, the other half were more optimistic, concluding that human ingenuity will continue innovating new jobs and entire industries, much as it has done since the dawn of the Industrial Revolution.

Even if these changes are rolled out over time, economic inequality may increase to the point that government needs to step in to prevent social unrest.

One potential solution could be a Universal Basic Income, once championed by those on both sides of the political spectrum, and almost signed into law during the time of former President Nixon.  The idea is that by providing citizens with enough income to survive irrespective of need, they can then focus on alternative pursuits, whether that’s in the form of volunteering in the communities, caring for family members or starting new businesses.

However, since that could also mean those receiving this free money simply sit home and do nothing, opponents suggest that a program such as the existing Earned Income Tax Credit is a better solution, since history has demonstrated that when people have a job – even one without a high wage – communities are generally safer and more stable.

To leverage existing infrastructure, another option might be to expand the Supplemental Security Income (SSI) program, which was launched in the 1970s to replace several other programs and currently covers over 5.5 million persons. Waste, fraud and abuse could also be curtailed with a single, simplified process.

Whatever it is called, the idea of a floor-level income is currently being tested in several countries including Finland, Brazil and The Netherlands as well as in the City of Oakland, California by Y Combinator, a start-up incubator which has a vested interest in preventing future social backlashes from the potentially job-taking technology companies it helps to found.

When similar trials were previously conducted in Canada, India and Namibia, social markers including health, education and nutrition improved while poverty levels, crime and emergency hospital visits declined.

So what impact could these technological changes and social programs have on housing? In the short- to medium-turn, focusing on those regions with the most technology-related jobs would be a great defensive move.

According to leasing giant CBRE Group’s annual Scoring Tech Talent report for 2016, these areas include not just the usual suspects such as California’s Bay Area, Seattle and Austin, but also Charlotte, Nashville, Baltimore and Oklahoma City.

In the longer term, another defensive move would be planning for the potential day when families, or groups of individuals, aggregate their basic incomes in order to qualify for both rental and for-sale housing.

In that case, because they will no longer be reliant on jobs in traditional city centers, their ability to live anywhere they choose could greatly expand the geographic reach of today’s homebuilding footprint.

Sunday, February 19, 2017

Millennials Jumping Into Market as Boomers Retire and Sell

Last month, I wrote about how improvements in the housing market will be different depending on geographic regions of the U.S. This month, I wanted to review how this gradual improvement will also differ based on demographics and generational shifts.

For all of 2016, the share of first-time buyers rebounded to 35 percent – a three-point improvement over 2015 levels -- as well as a positive rebound for this cohort’s historical 40-percent share of the market. 

Obviously, encouraging first-time buyers to grab that first rung of the housing ladder is important, as they can then roll future equity gains into move-up homes, vacation homes and eventually senior housing, which continued to account for 14 percent of sales.

The typical buyer in 2016 was 44 years old, a figure which has remained flat for three years, but the median household income rose again to $88,500. Two-thirds of these buyers were married couples, followed distantly by single women (17 percent), unmarried couples (8 percent) and single men (7 percent).

So what kind of homes did they buy?

Just 17 percent of new homes sold in 2016 were priced under $200,000, for a drop of two percentage points from 2015. A larger drop of three percentage points was noted for new homes priced from $200,000 to $300,000 (32 to 29 percent), while new homes priced from $300,000 to $500,000 increased their share from 33 to 38 percent, lending additional proof that the ‘sweet spot’ for home builders is in this first- and second-time move-up market. Meanwhile, the share of more discretionary homes priced over $500,000 remained stable at 16 percent between the two years.

Looking at just December of 2016, the distribution of sales for new homes moved even further in the same direction, with those priced from $200,000 to $500,000 accounting for more than two-thirds of the total, while the share of entry-level units priced under $200,000 eroded further to 14 percent.

Meanwhile, the existing home market – which the NAR says accounted for 86 percent of all home sales in 2016 – seems to remain the favored option for entry-level buyers. During December of 2016, more than four of every ten existing home sales were priced from $100,000 to $250,000, with another 13 percent priced under $100,000. While there is certainly a robust move-up market for existing homes – with 32 percent of December’s sales priced from $250,000 to $500,000 – when existing homeowners are looking to trade in their starter home for something larger or in a better area, about one-third focus on the advantages of new construction.

Looking ahead to the longer term, two primary demographic trends will continue to drive housing demand.

The first is an aging population, with the number of adults aged 70 and over rising by over 90 percent over the next two decades. The challenge here is ensuring a reliable supply of affordable, accessible housing which can also provide the types of supportive and social services needed as the huge Baby Boom generation continues to retire at the rate of 10,000 per day.

The second main trend is the increasing share of the minority population among the 86-million strong Millennial generation, which is already at 45 percent – a bit higher than the 40 percent share among Generation X and significantly more than the 28 percent share among Baby Boomers.

While it is certainly true that Millennials have been postponing starting their own families and buying their own homes, the five-point increase in 2016’s share of homes bought by first-time buyers would indicate this is starting to change. In fact, over the next two decades, this cohort will increase the population of those aged 30 to 49 years by 17 percent.

However, what will be different this time are the types of homes demanded by the significantly larger minority populations versus previous generations.

Although just 11 percent of the homes sold in 2016 were to multi-generational households, this is expected to increase due both to average larger family sizes among minority groups as well as multiple income streams to finance these purchases with traditional mortgage products.

For home sellers – who typically had lived in their homes for 10 years in 2016 – builders of new homes have a unique opportunity to capture their interest, especially since the most-cited reasons include a too-small home (18 percent), a desire to move closer to family and friends (15 percent) or a job relocation (14 percent).With a median net gain of over $43,000, that figure certainly makes a robust down payment for the next purchase.

Thursday, January 19, 2017

The Housing Market in 2017: Not all Regions are Created Equal

Although all signs continue to point to a positive year ahead for the national housing market, that doesn’t mean the gains and opportunities will be evenly shared.  As in years past, it will likely be the South and West regions out-performing against the Northeast and Midwest.

Looking first at where the jobs are, however, it was in the Midwest and the Northeast where the unemployment rate was the lowest in late 2016, with the highest rate noted in the West and the South.  Yet it was in the South where most of the private sector job growth occurred (42 percent), followed somewhat distantly by the West (29 percent). Although the Midwest and the Northeast may have lower overall unemployment rates, their capture of job growth ranged from just 12 to 15 percent.

Another snapshot of the employment picture is planned job cuts at the end of 2016, with the Northeast and the South together accounting for nearly two-thirds of the total; the fewest planned job cuts would take place in the West and the Midwest.  In other words, it’s possible that unemployment rates in the Northeast and South will inch back up in the months ahead.

In terms of new single-family home sales through the first eleven months of 2016, nearly 60 percent were sold in the bustling South region, followed distantly by the West, the Midwest and the Northeast. Yet it was the Northeast which saw the greatest year-on-year sales increase of 34 percent – double that of the Midwest and roughly three times the rate of the South and West.

In terms of market balance, while the share of unsold homes in the Northeast indicates more excess supply, in the South demand continues to run slightly ahead of supply.  Not surprisingly, builder confidence remained strongest in the West and South in the first month of 2017, yet was also almost as positive in the Midwest, and lowest in the Northeast.

As it did for new homes, the South region also dominated the share of existing home sales through most of 2016, with over 40 percent of the total, or nearly the combined share of both the Midwest and the West.  Yet, it was again the Northeast which noted the largest year-on-year sales increase of five percent – a point higher than in the Midwest and more than double the rate of the South and West. Nonetheless, for pending sales the South continues to outperform both the nation and the other regions, and it also posted the highest rental vacancy rate in the third quarter of 2016.  In the housing-crunched West, vacancy rates were just 4.4 percent.

Looking ahead to the rest of 2017 based on building permits and housing starts in 2016, the South will likely continue to capture 40 to 50 percent of both single- and multi-family construction, with another 25 to 30 percent reported in the West.  Of the remainder, about 15 percent will be built in the Midwest, and 10 to 15 percent in the Northeast.  Similar numbers were also noted for completions throughout 2016.

As a final caveat, however, past is not prologue, especially with a new Presidential administration likely to impact the housing market in various ways.  These changes could include higher mortgage interest rates due to increasing inflation and housing finance reform as well as worsening labor shortages related to more stringent immigration enforcement.  However, we could also see increased demand due to lower income taxes and fewer regulations.

If nothing else, 2017 should be quite interesting.

Friday, January 13, 2017

January column for Builder & Developer now posted online


My column for the January 2017 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "A Look Ahead to 2017:  Higher Interest Rates and Tight Inventory," I discussed what we might expect for the housing market with a new Presidential administration.

An excerpt:

For 2017, the International Monetary Fund (IMF) is projecting global growth of 3.4 percent (2.2 percent for the U.S.) versus 3.1 percent in 2016 (1.6 percent for the U.S.), with this higher growth rate attributed mostly due to greater stabilization for energy and commodity prices as well as continued low interest rates.

However, the same forecast is also mindful of the potential economic fallout from political instability not just here at home, but also across Western and Eastern Europe, the Middle East as well as parts of Asia and South America. So what does that mean for a Trump Administration? It depends a lot on whether or not the new President takes his own campaign promises seriously or literally...

To read the entire column, click here.

To read the entire January 2017 issue in digital format, click here.