The Housing Chronicles Blog: 6/1/18 - 7/1/18

Wednesday, June 20, 2018

May housing starts rebound to near 7-hear high, up 20.3 percent year-on-year

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,350,000. This is 5.0 percent above the revised April estimate of 1,286,000 and is 20.3 percent above the May 2017
rate of 1,122,000.

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May existing home sales dip 0.4 percent from April, down 3.0 percent year-on-year

Total existing-home sales decreased 0.4 percent to a seasonally adjusted annual rate of 5.43 million in May from downwardly revised 5.45 million in April. With last month's decline, sales are now 3.0 percent below a year ago and have fallen year-over-year for three straight months.

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Tuesday, June 19, 2018

June builder confidence dips 2 points to 68 due to higher lumber prices

Builder confidence in the market for newly-built single-family homes fell two points to 68 in June, and was due in large part to sharply elevated lumber prices, adding nearly $9,000 to the price of a new single-family home since January 2017.The index measuring current sales conditions fell to 75, the component gauging expectations in the next six months dropped to 76, and the metric charting buyer traffic edged down to 50.

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May building permits down 4.6 percent from April but still up 8.0 percent year-on-year

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,301,000. This is 4.6 percent below the revised April rate of 1,364,000, but is 8.0 percent above the May 2017 rate of 1,205,000.

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Friday, June 15, 2018

May industrial production edged down 0.1 percent but still up 3.5 percent year-on-year

Industrial production edged down 0.1 percent in May after rising 0.9 percent in April. At 107.3 percent of its 2012 average, total industrial production was 3.5 percent higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in May to
77.9 percent, a rate that is 1.9 percentage points below its long-run (1972-2017) average.

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Consumer sentiment rises to 99.3 in mid-June reading, inflation becoming a concern

Consumer sentiment rose slightly in early June to 99.3 due to consumers' more favorable assessments of their current financial situation and more favorable views of current buying conditions for household durables. The Expectations Index, in contrast, declined to its lowest level since the start of the year due to less favorable prospects for the overall economy. The sharpest divide was between the record number of households who mentioned recent income gains and the highest expected year-ahead inflation rate since 2015.

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Thursday, June 14, 2018

Initial unemployment claims fall 4,000 in latest update

In the week ending June 9, initial unemployment claims were 218,000, a decrease of 4,000 from the previous week's unrevised level of 222,000. The 4-week moving average was 224,250, a decrease of 1,250 from the previous week's unrevised average of 225,500.

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Mortgage applications dip 1.5 percent, rates rise 8 basis points

The Market Composite Index decreased 1.5 percent on a seasonally adjusted basis from one week earlier, with both purchase loans and refinances dipping 2.0 percent. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.83 percent from 4.75 percent.

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Bloomberg: Consumer comfort index rebounds to five-week high

U.S. consumer confidence advanced to a five-week high, rising one full point from 54.8 to 55.8, as resilient job growth boosted Americans' views of the economy.

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May retail sales up 0.8 percent, largest jump in six months

Retail sales jumped 0.8 percent in May, or the biggest advance since November 2017, suggesting stronger growth for 2Q 2018. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain.

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Wednesday, June 13, 2018

Fed hikes rate to highest rate since 2008, indicates two more increases in 2018

The Federal Reserve increased the target range for its benchmark interest rate by 0.25% to a range of 1.75%-2%, the highest since September 2008. In raising its benchmark interest rate, the Fed cited an economy that is growing at a "solid" rate and would likely include two more rate hikes in 2018.

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The Rise of the New Single-Family Rental Home: A Hedge Against Real Estate Cycles

In September of 2015, I wrote a column about the introduction of a new product type to the home building marketplace:  the single-family home for rent, otherwise known as build-to-rent (B2R).  At that time, just a few builders including Lennar and Toll Brothers had dipped their toes into these waters, but today it’s being seen as a clever hedge against the boom-and-bust real estate cycles which can test even the best-run companies.

To be sure, it’s not just home builders getting into this game. Wall Street-backed companies like Invitation Homes and AmericanHomes4Rent started the trend by buying up cheap, existing single-family homes in foreclosure back in 2012 when home prices were near their lowest, eventually assembling a portfolio of 200,000 units across the country.  Even with that rapid growth, their holdings still represent just 1.4 percent of the estimated 14 million single-family rental homes, with most owned by small, ‘Mom and Pop’ operators.

Today, with this business throwing off stable cash flow and maintaining low vacancy rates, more builders are entering this space, with some focused entirely on the B2R model.

According to a recent NAHB analysis of Census Bureau data, during the 12 months ending with the first quarter of 2018, there were 37,000 single-family homes started for rent, up from 33,000 during the previous four quarters. Of this total, 7,000 were started in the first quarter alone. While that annual market share of 4.3 percent is down from the 5.8 percent share of five years ago, it’s still significantly higher than the 2.7 percent average noted during the prior 20-year period of 1992-2012.

Not surprisingly, builders of new single-family homes for rent also enjoy some significant advantages over the typical corporate model of offering only existing homes. These benefits include fewer maintenance issues associated with newly built units, the ability to standardize features and amenities across a portfolio (and charge premiums for upgrades), and the higher management efficiencies which come with concentrating multiple units in the same location. Indeed, one of the most common complaints cited by tenants of these corporate rental home behemoths is that their widely dispersed maintenance operations depend on local contractors, often resulting in long delays for even essential issues.

Like builders of homes for sale, rental home builders also have divided product lines by quality of amenities and services.  In some cases, such as when a builder of both rental and for-sale homes include the two options scattered across the same neighborhood, community amenities might be more basic with no on-site management.

In other cases, such as in a neighborhood of only homes for rent, the leasing experience might be similar to that of a traditional for-sale community, with several model homes from which to choose and full-time leasing agents plus on-site maintenance and gardening services.  For those renters wanting to experience the benefits of a resort-style apartment community in a single-family home (and willing to pay more), community amenities could also include pool and spa areas, parks and gated entrances.

While it’s not easy to quantify the exact depth of demand for single-family rentals, a combination of economic and demographic factors do provide some considerable tailwinds for the foreseeable future.

On the economic side, high levels of student loan debt and the challenges of saving for a down payment versus a tight job market mean more young families are willing to test-drive living in single-family neighborhoods. According to the American Community Survey, 56 percent of gains in the nation’s rental housing stock between 2005 and 2015 were for single-family homes, while the number of households living in all rental properties grew from 33 to 36 percent, or more than an additional 544,000 per year.

On the demographic side, millennials are now increasingly reaching milestones delayed by the Great Recession, with more moving back to the suburbs they once avoided.  While partly due to bedroom count limitations in most apartments, it’s also due to changing lifestyle preferences.  In many cases, although many younger renters in their 30s have sufficient incomes to quality for mortgages, the ability to live in a single-family home without the commitment of a purchase is steadily gaining popularity.

Joining these younger renters are baby boomers looking to downsize not necessarily in space, but in the financial commitment required. By renting the same type of single-family home product they once owned, they can not only avoid spending down retirement savings into a down payment, but enjoy the freedom associated with a more transient lifestyle.

That’s a hedge from which both builder and renter can benefit.

Tuesday, June 12, 2018

Firms' inflation expectations for the year ahead remain flat at 2.1 percent

Despite rising inflation noted in May, firms' inflation expectations in June were roughly unchanged at 2.1 percent over the year ahead.

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May Small Business Optimism Index rose 3 points to near-record level

The Small Business Optimism Index increased in May by three points to 107.8, to the second-highest level in the NFIB survey's 45-year history. Respondents reported high numbers in several key areas including compensation, profits, and sales trends.

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PPI rose 0.5 percent in May, up 3.1 percent year-on-year

The Producer Price Index for final demand rose 0.5 percent in May, seasonally adjusted. On an unadjusted basis, the final demand index moved up 3.1 percent for the 12 months ended in May, the largest 12-month increase since climbing 3.1 percent in January 2012.

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CPI rose 0.2 percent in May, up 2.8 percent year-on-year

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May on a seasonally adjusted basis after rising 0.2 percent in April. Over the last 12 months, the all items index rose 2.8 percent before seasonal adjustment.

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CPI rose 0.2 percent in May, up 2.8 percent year-on-year

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May on a seasonally adjusted basis after rising 0.2 percent in April. Over the last 12 months, the all items index rose 2.8 percent before seasonal adjustment.

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Monday, June 11, 2018

CoreLogic: Equity in mortgaged homes has more than doubled in past 5 years

The amount of equity in mortgaged real estate increased by $1 trillion in Q1 2018 from Q1 2017, an annual increase of 13.3 percent, and has more than doubled in five years. The nationwide negative equity share for Q1 2018 was 4.7 percent of all homes with a mortgage, more than 20 percentage points lower than the peak negative equity share - 26 percent - recorded in Q4 2009.

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April wholesale inventories rose 0.1 percent, sales up 0.8 percent

Wholesale inventories rose 0.1 percent in April, although it was still the weakest gain in six months.  Sales rose 0.8 percent, well above forecasts, and rising for the third straight month.

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Thursday, June 7, 2018

Initial unemployment claims fall 1,000 in weekly report

In the week ending June 2, initial unemployment claims were 222,000, a decrease of 1,000 from the previous week's revised level. The 4-week moving average was 225,500, an increase of 2,750 from the previous week's revised average.

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Bloomberg: Weekly consumer comfort index drops to five-month low of 54.8

Americans' sentiment cooled as a gauge of views on the economy fell to a five-month low, with the Bloomberg Consumer Comfort Index falling from 55.2 to 54.8 in weekly survey.

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1Q 2018 service sector revenue dipped 1.2 percent from previous quarter but still up 5.2 percent year-on-year

U.S. selected services total revenue for the first quarter of 2018 fell 1.2 percent from the fourth quarter of 2017 to $3,746 billion, but were up 5.2 percent year-on-year.

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April trade deficit fell to 7-month low as exports rose to record high

The U.S. trade deficit fell to a seven-month low in April, falling 2.1 percent from March to $46.2 billion. Exports rose to a record high, lifted by an increase in shipments of industrial materials and soybeans.

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Wednesday, June 6, 2018

May Service Sector Index rose 1.8 points to 58.6, but uncertainty remains

The NMI® registered 58.6 percent, which is 1.8 percentage points higher than the April reading of 56.8 percent. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.

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May Manufacturing Index rose 1.4 points to 58.7, but pricing pressure now increasing

The May PMI® registered 58.7 percent, an increase of 1.4 percentage points from the April reading of 57.3 percent. Demand remains robust, but the nation's employment resources and supply chains continue to struggle. Respondents say price pressure at their companies is causing price-increase discussions.

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Labor Productivity up 0.4 percent in 1Q 2018 and 1.3 percent year-on-year

Nonfarm business sector labor productivity increased 0.4 percent during the first quarter of 2018, as output increased 2.7 percent and hours worked increased 2.3 percent. From the first quarter of 2017 to the first quarter of 2018, productivity increased 1.3 percent, reflecting a 3.6-percent increase in output and a 2.3-percent increase in hours worked.

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Mortgage applications rise 4.1 percent in latest survey, rates dip 9 basis points

The Market Composite Index increased 4.1 percent on a seasonally adjusted basis from one week earlier, with both purchase loans and refinances up 4.0 percent. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.75 percent.

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Tuesday, June 5, 2018

May job openings rose to 6.7 million, 302,000 more than number of job seekers

The number of open jobs in May rose by one percent from April to another series high of 6.7 million.  This number exceeds the number of jobless by over 300,000.  At the same time, hiring rose 1.7 percent to 5.6 million, and the quits rose 1.6 percent to 5.4 million.

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Monday, June 4, 2018

April factory goods orders dip 0.8 from March, but YTD orders up 8.3 percen

Factory goods orders decreased 0.8 percent from March to April, due largely to lower orders for aircraft. However, YTD through April, orders were up 8.3 percent.

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Friday, June 1, 2018

April construction spending up 7.6 percent year-on-year, supported largely by new homes

April spending on new home construction rise by its highest amount in 24 years (+4.5%), and overall construction spending rose to a record level of $1.31 trillion.  This new spending level was up 7.6% year-on-year and 1.8% from the previous month.

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May job growth rebounded sharply to 223,000, unemployment rate edged down to 3.8 percent

Total nonfarm payroll employment increased by 223,000 in May, and the unemployment rate edged down to 3.8 percent. Employment continued to trend up in several industries, including retail trade, health care, and construction.

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