Our recap of the week in numbers housing for sale and rent, financing, and construction to the many indices and measures of the economy.
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Politics and the FTX Crytpo Crash Continued to Overshadow Housing in the News, but We Found Some Interesting Housing Data and Forecasts
The Big No News
- Federal Reserve Bank officials explicitly warned investors that the stock and bond market exuberance over the October decline in the CPI to 7.7% was irrational. Treasury bond investors ignored the warning, pushing the 10-year down slightly early in the week.
- The Fed warning may have been overshadowed by data reinforcing the hope that inflation is beginning to subside. (See Other News and Data below.)
- The new CEO of crypto exchange FTX filed a declaration with the bankruptcy court that described the financial controls at FTX as the worst he had ever seen in 40 years of corporate restructuring experience. Is that news? When children run companies with billions of dollars in assets, childish things happen.
Home Sales, Starts, and Financing
- We know that the housing recession is in full swing now because the housing economists have started to talk about the recovery.
- At a presentation last week, Lawrence Run, the Chief Economist at the National Association of Realtors, forecast that home prices will be flat on average nationwide in 2023 with a 7% decline in unit sales volume.
- For 2024, he predicts at 10% increase year-over-year in unit sales with a 5% increase in the average sale price.
- Mr. Yun also reminded the audience that 2022 is not 2008. “Housing inventory is about a quarter of what it was in 2008,” Yun said. “Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years.”
- From its monthly housing survey, the U.S. Census Bureau reported a modest deceleration in construction but probably more activity than the Federal Reserve Bank would like to see. The resilience of construction and the decline in initial jobless claims (see below) suggest that the strong interest rate action by the Fed has not slowed the economy sufficiently to bring inflation down from 7.7% in October to the Fed’s 2% target.
- Single-family building permits declined 3.6% from September to 839,000, and multi-family were down to 633,000. The combination of all permits was down 2.4% from September and 10.1% from October 2021. The decline in starts does not bode well for the housing supply shortage or housing affordability but does signal good news for existing homeowners and builders that home values will recover quickly once mortgage rates descend. Because most building permits are valid for at least a year and usually can be extended and are inexpensive, permits today may not appear as construction starts until many months into the future.
- Housing starts dropped 4.2% from September and 8.8% from October 2021. Compare the total building permit count of 1,564,000 to the total housing starts of 1,425,000. Housing builders have putting permits on the shelf.
- Completions in all housing totaled 1,339,000 6.4% below September but 6.6% above October 2021. Builders are completing work-in-process, which is the only sensible decision once vertical construction begins.
- More analysis from Calculated Risk.
- The research arm of Freddie Mac released an analysis of home buyer migration patterns. The report is lengthy and detailed. We’ve culled some especially interesting data points:
- In 2021, 5.7 million fewer households moved from one housing situation to another than in 2017. Yes, 5.7 million fewer — the lowest percentage of the population to relocate since 1948.
- Among the many fewer moves by households, a much higher percentage were from one metro area to another.
- In the top 10 metro destinations for household migration in February 2022, the median home price was $128,000 less than in the metro from which the households migrated.
- The list of metro winners and losers in net migration is fascinating.
Residential Rents and Construction
- The National Multifamily Housing Council released its latest apartment demand research.
- In June 2022, multifamily housing starts reached a record high of 841,000 units annually.
- Nearly all respondents (97%) to the NMHC survey reported construction delays due to material or labor shortages.
- The U.S. will need 4.3 million new multifamily units constructed by 2035.
- Rising interest rates are depressing the pace of multifamily starts.
- The number of units authorized but not started rose by 33.3% year-over-year in September.
- The 10-year treasury ended the day Thursday at 3.771% barely changed during the week.
- The 30-year fixed rate mortgage also moved little during the week closing Thursday at 6.65%.
- The spread between the two remains at a near historic high, indicated that investors have diminished appetite for mortgage-backed securities.
- Although still volatile, lumber has bounced in a range roughly 40% below the same periods in 2021. The Thursday closing price was $440 per 1,000 board-feet, down almost 42% for the year, 15% for the month, and over 4% for the week.
Other News and Data
- The U.S. Bureau of Labor Statistics reported on the October 2022 Producer Price Index.
- Wholesale prices rose just 0.2% from September, a fourth straight month of slowing growth in the PPI.
- The Index was 8.0% year-over-year, down slightly from September and 370 basis points below the high in March 2022.
- Initial unemployment claims for the week ending November 11 dropped by 4,000 to 222,000, according to the U.S. Department of Labor.
- Despite thousands of layoffs announced by large technology companies, workers are easily finding new positions.
- Walmart and Home Depot both beat Wall Street expectations for the third quarter but not without footnotes.
- Home Depot reported its average purchase ticket total rose 8.8% from 2021 Q3, but the number of transactions declined by 4.4%.
- Walmart revenue rose 8.7%, which the company attributed to grocery revenue growth among higher income customers.