Calculated Risk

NMHC: Rent Payment Tracker Shows Households Paying Rent Declined in October

From the NMHC: NMHC Rent Payment Tracker Finds 90.6 Percent of Apartment Households Paid Rent as of October 20
The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 90.6 percent of apartment households made a full or partial rent payment by October 20 in its survey of 11.4 million units of professionally managed apartment units across the country.

This is a 1.8-percentage point, or 199,224-household decrease from the share who paid rent through October 20, 2019 and compares to 90.1 percent that had paid by September 20, 2020. These data encompass a wide variety of market-rate rental properties across the United States, which can vary by size, type and average rental price.

“The importance of the initial support provided to apartment residents by the CARES Act is becoming increasingly clear,” said Doug Bibby, NMHC President. “However, that support has now long since expired and the savings households were able to build are evaporating quickly. NMHC continues to urge lawmakers to come together and pass meaningful assistance to support renters and keep America’s rental housing sector stable.”
emphasis added
NMHC Rent Tracker Click on graph for larger image.

This graph from the NMHC Rent Payment Tracker shows the percent of household making full or partial rent payments by the 20th of the month.

CR Note: This is mostly for large, professionally managed properties.  
There has been some decline in households paying rent, but rent payments are not falling off a cliff.

Comments on September Existing Home Sales

Earlier: NAR: Existing-Home Sales Increased to 6.54 million in September

A few key points:

1) This was the highest sales rate since 2006. Existing home sales are counted at the close of escrow, so the September report was mostly for contracts signed in July and August - when the economy was much more open than in March and April. Some of the increase over the last few months was probably related to pent up demand from the shutdowns in March and April. However, with the high unemployment rate and the high rate of COVID infections, housing might be under some pressure in 2021. That is difficult to predict and depends on the course of the pandemic.

2) Inventory is very low, and was down 19.2% year-over-year (YoY) in September. This is the lowest level of inventory for September since at least the early 1990s.

3) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the Consensus.

Existing Home Sales YoYClick on graph for larger image.

This graph shows existing home sales by month for 2019 and 2020.

Note that existing home sales picked up somewhat in the second half of 2019 as interest rates declined.

Even with weak sales in April, May, and June, sales to date are only down about 0.2% compared to the same period in 2019.

Existing Home Sales NSAThe second graph shows existing home sales Not Seasonally Adjusted (NSA) by month (Red dashes are 2020), and the minimum and maximum for 2005 through 2019.

Sales NSA in September (560,000) were 24% above sales last year in September(450,000).

NAR: Existing-Home Sales Increased to 6.54 million in September

From the NAR: Existing-Home Sales Soar 9.4% to 6.5 Million in September
Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 9.4% from August to a seasonally-adjusted annual rate of 6.54 million in September. Overall sales rose year-over-year, up 20.9% from a year ago (5.41 million in September 2019).
...
Total housing inventory at the end of September totaled 1.47 million units, down 1.3% from August and down 19.2% from one year ago (1.82 million). Unsold inventory sits at a 2.7-month supply at the current sales pace, down from 3.0 months in August and down from the 4.0-month figure recorded in September 2019.
emphasis added
Existing Home SalesClick on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September (6.54 million SAAR) were up 9.4% from last month, and were 20.9% above the September 2019 sales rate.

This was the highest sales rate since 2006.

The second graph shows nationwide inventory for existing homes.

Existing Home InventoryAccording to the NAR, inventory decreased to 1.47 million in September from 1.49 million in August.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory was down 19.2% year-over-year in September compared to September 2019.

Months of supply decreased to 2.7 months in September.

This was above the consensus forecast. I'll have more later.

Weekly Initial Unemployment Claims decrease to 787,000

Special Note: "California has completed its pause in processing of initial claims and has resumed reporting actual unemployment insurance claims data based on their weekly claims activity. This News Release reflects actual counts for California for the current week and revisions to the two prior weeks."

The DOL reported:
In the week ending October 17, the advance figure for seasonally adjusted initial claims was 787,000, a decrease of 55,000 from the previous week's revised level. The previous week's level was revised down by 56,000 from 898,000 to 842,000. The 4-week moving average was 811,250, a decrease of 21,500 from the previous week's revised average. The previous week's average was revised down by 33,500 from 866,250 to 832,750.
emphasis added
This does not include the 345,440 initial claims for Pandemic Unemployment Assistance (PUA) that was up from 337,228 the previous week. (There are some questions on PUA numbers).

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 811,250.

The previous week was revised down.

The second graph shows seasonally adjust continued claims since 1967 (lags initial by one week).

At the worst of the Great Recession, continued claims peaked at 6.635 million, but then steadily declined.

Continued claims decreased to 10,018,000 (SA) from 11,183,000 (SA) last week and will likely stay at a high level until the crisis abates.

Note: There are an additional 10,232,853 receiving Pandemic Unemployment Assistance (PUA) that decreased from 10,658,673 the previous week (there are questions about these numbers). This is a special program for business owners, self-employed, independent contractors or gig workers not receiving other unemployment insurance.

Thursday: Existing Home Sales, Unemployment Claims

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is initial claims decreased to 860 thousand from 898 thousand last week.

• At 10:00 AM, Existing Home Sales for September from the National Association of Realtors (NAR). The consensus is for 6.25 million SAAR, up from 6.00 million in August.

• At 11:00 AM, the Kansas City Fed manufacturing survey for October.

October 21 COVID-19 Test Results

The US is now mostly reporting 700 thousand to 1 million tests per day. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections (probably close to 1%), so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 739,443 test results reported over the last 24 hours.

There were 57,294 positive tests.

Over 14,700 Americans deaths from COVID have been reported in October. See the graph on US Daily Deaths here.

COVID-19 Tests per Day Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 7.7% (red line is 7 day average).

For the status of contact tracing by state, check out testandtrace.com.

And check out COVID Exit Strategy to see how each state is doing.

COVID-19 Positive Tests per DayThe second graph shows the 7 day average of positive tests reported.

The dashed line is the July high.

Note that there were very few tests available in March and April, and many cases were missed (the percent positive was very high - see first graph). By June, the percent positive had dropped below 5%.

Everyone needs to be vigilant or we might see record high 7-day average cases before the end of October.

Fed's Beige Book: "Slight to modest" Growth in Economic Activity

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of St. Louis based on information collected on or before October 9, 2020."
Economic activity continued to increase across all Districts, with the pace of growth characterized as slight to modest in most Districts. Changes in activity varied greatly by sector. Manufacturing activity generally increased at a moderate pace. Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories. Banking contacts also cited increased demand for mortgages as the key driver of overall loan demand. Conversely, commercial real estate conditions continued to deteriorate in many Districts, with the exception being warehouse and industrial space where construction and leasing activity remained steady. Consumer spending growth remained positive, but some Districts reported a leveling off of retail sales and a slight uptick in tourism activity. Demand for autos remained steady, but low inventories have constrained sales to varying degrees. Reports on agriculture conditions were mixed, as some Districts are experiencing drought conditions. Districts characterized the outlooks of contacts as generally optimistic or positive, but with a considerable degree of uncertainty. Restaurateurs in many Districts expressed concern that cooler weather would slow sales, as they have relied on outdoor dining. Banking contacts in many Districts expressed concern that delinquency rates may rise in coming months, citing various reasons; however, delinquency rates have remained stable.
...
Employment increased in almost all Districts, though growth remained slow. Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs. Most Districts continued reporting tight labor markets, attributing it to workers' health and childcare concerns, with many firms consequently offering increased schedule flexibility; a few Districts, however, noted some firms were finding it easier to hire workers. Wages increased slightly in most Districts, often tied to firms' difficulty finding workers, especially for low-wage or high-demand jobs. Some firms reported returning wages (and raises) to normal levels, but many reported more stable wages.
emphasis added
CR Note: This suggests economic growth has slowed recently.

LA Area Port Traffic: Strong Imports, Weak Exports in September

Note: The expansion to the Panama Canal was completed in 2016 (As I noted a few years ago), and some of the traffic that used the ports of Los Angeles and Long Beach is probably going through the canal. This might be impacting TEUs on the West Coast.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 1.5% in September compared to the rolling 12 months ending in August.   Outbound traffic was down 0.4% compared to the rolling 12 months ending the previous month.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.

Imports were up 16% YoY in September, and exports were down 4% YoY.

AIA: "Architectural billings slowdown moderated in September"

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architectural billings slowdown moderated in September
A slight improvement in business conditions has led to fewer architecture firms reporting declining billings, according to a new report today from The American Institute of Architects (AIA).

AIA’s ABI score for September was 47.0 compared to 40.0 in August (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from August to September, however, the pace of decline slowed significantly. Inquiries into new projects during September grew for the second time since February, with a score of 57.2 compared to 51.6 in August. The value of new design contracts moderated to a score of 48.9 in September from 46.0 the previous month.

“Despite the multi-family residential sector showing signs of improvement, overall business conditions are recovering at a disappointingly slow pace,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Other sectors may begin to stabilize in the coming months, but across the board improvement shouldn’t be expected until the economic impact of the pandemic subsides significantly.”
...
• Regional averages: Midwest (45.6); West (45.6); South (43.7); Northeast (41.5)

• Sector index breakdown: multi-family residential (54.0); mixed practice (47.3); commercial/industrial (43.3); institutional (40.5)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 47.0 in September, up from 40.0 in August. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

This index has been below 50 for seven consecutive months.  This represents a significant decrease in design services, and suggests a decline in CRE investment through the first half of 2021 (This usually leads CRE investment by 9 to 12 months).

This weakness is not surprising since certain segments of CRE are struggling, especially offices and retail.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 16, 2020.

... The Refinance Index increased 0.2 percent from the previous week and was 74 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 26 percent higher than the same week one year ago.

“Mortgage rates increased last week, with the 30-year fixed rate climbing 2 basis points to 3.02 percent – the highest since late September. Despite the uptick in rates, refinance activity held steady, with FHA refinance applications posting a 17.6 percent increase, helping to offset declines in the other loan types,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Homebuyer demand remains strong this fall, but purchase applications did decrease 2 percent, with both conventional and government purchase activity taking a step back. Given the ongoing housing market recovery and low rate environment, both purchase and refinance applications remained robust compared to a year ago, rising 26 percent and 74 percent, respectively.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.02 percent from 3.00 percent, with points increasing to 0.36 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

The refinance index has been very volatile recently depending on rates and liquidity.

But with record low rates, the index remains up significantly from last year.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 26% year-over-year unadjusted.

Note: Red is a four-week average (blue is weekly).

Wednesday: Beige Book, Architecture Billings Index

Wedneday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• During the day, The AIA's Architecture Billings Index for September (a leading indicator for commercial real estate).

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

October 20 COVID-19 Test Results

The US is now mostly reporting 700 thousand to 1 million tests per day. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections (probably close to 1%), so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 814,179 test results reported over the last 24 hours.

There were 60,582 positive tests.

Over 13,700 Americans deaths from COVID have been reported in October. See the graph on US Daily Deaths here.

COVID-19 Tests per Day Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 7.4% (red line is 7 day average).

For the status of contact tracing by state, check out testandtrace.com.

And check out COVID Exit Strategy to see how each state is doing.

COVID-19 Positive Tests per DayThe second graph shows the 7 day average of positive tests reported.

The dashed line is the July high.

Note that there were very few tests available in March and April, and many cases were missed (the percent positive was very high - see first graph). By June, the percent positive had dropped below 5%.

Everyone needs to be vigilant or we might see record high 7-day average cases before the end of October.

Lehner: "COVID’s Impact on State and Local Governments"

Josh Lehner, at the Oregon Office of Economic Analysis, has an interesting post today: COVID’s Impact on State and Local Governments
This started with a seemingly basic question: “Why is public sector employment down so much this year?” The normal pattern we see is that the public sector is more of a stabilizing force in the economy. Job losses and budget cuts come with a delay as it usually takes time for lower levels of economic activity to translate into fewer tax collections. Those impacts usually hit the budget the fiscal year after the recession starts. However, so far in 2020 local governments have shed nearly as many jobs as the private sector. Both the size of the losses and swiftness with which they came is highly unusual.
The Housing TrilemmaClick on graph for larger image.
After digging into the data it is quite clear that the local government job losses are not a result of your standard budget cuts. That traditional recessionary dynamic is likely to come, but will hit next year, not this. The losses today are directly related to the pandemic and social distancing ...

In terms of higher education, the impacts of the pandemic, social distancing, and online schooling are clear. ... Besides education, the public sector does a lot of things. Employment here is down largely due to zoos, convention centers, recreation facilities, public pools, libraries and the like being limited during the pandemic. The losses in public administration are relatively small to date.

All of that said, there is still the traditional recessionary dynamic at play. Those impacts will largely come next year, not this.
emphasis added
Without fiscal relief from the Federal Government, we will probably see significant state and local government layoffs next year. There is much more in the post.

Phoenix Real Estate in September: Sales Up 18.5% YoY, Active Inventory Down 40% YoY

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales were at 9,305 in September, up from 8,878 in August, and up from 7,850 in September 2019. Sales were up 4.8% from August 2020 (last month), and up 18.5% from September 2019.

2) Active inventory was at 8,400, down from 13,936 in September 2019. That is down 40% year-over-year.

3) Months of supply decreased to 1.48 in September, down from 1.52 in August. This is very low.

Sales are reported at the close of escrow, so these sales were mostly signed in July and August.

CAR on California September Housing: Sales up 21% YoY, Active Listings down 48% YoY

The CAR reported: California housing market outperforms expectations, breaking record high median price for fourth straight month, C.A.R. reports
California’s home-buying season extended further into September as home sales climbed to their highest level in more than a decade, and the median home price set another high for the fourth straight month, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 489,590 units in September, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2020 if sales maintained the September pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

September’s sales total climbed above the 400,000 level for the third straight month since the COVID-19 crisis depressed the housing market earlier this year and was the highest sales level recorded since February 2009. September sales rose 5.2 percent from 465,400 in August and were up 21.2 percent from a year ago, when 404,030 homes were sold on an annualized basis.
...
For-sale properties continued to be added to the market at a pace slower than normal, and housing supply remained significantly below last year’s level. The year-over-year decline of 48.4 percent in September was the fourth consecutive month with active listings falling more than 40 percent from the prior year.
emphasis added
CR Note: Existing home sales are reported when the transaction closes, so this was mostly for contracts signed in July and August. Sales-to-date, through September, are down 3.7% compared to the same period in 2019.

BLS: September Unemployment rates down in 30 States, Higher in 8 States

From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were lower in September in 30 states, higher in 8 states, and stable in 12 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. All 50 states and the District had jobless rate increases from a year earlier. The national unemployment rate declined by 0.5 percentage point over the month to 7.9 percent but was 4.4 points higher than in September 2019.

Nonfarm payroll employment increased in 30 states, decreased in 3 states, and was essentially unchanged in 17 states and the District of Columbia in September 2020.
...
Hawaii had the highest unemployment rate in September, 15.1 percent, followed by Nevada, 12.6 percent. Nebraska had the lowest rate, 3.5 percent, followed by South Dakota, 4.1 percent, and Vermont, 4.2 percent.
Hawaii and Nevada are being impacted by the lack of tourism.

Comments on September Housing Starts

Earlier: Housing Starts at 1.415 Million Annual Rate in September

Total housing starts in September were below expectations, and starts in July and August were revised down. The weakness in September was due to the volatile multi-family sector (apartments are under  pressure from COVID).

The housing starts report showed starts were up 1.9% in September compared to August, and starts were up 11.1% year-over-year compared to September 2019.

Single family starts were up 22% year-over-year.  Low mortgage rates and limited existing home inventory have given a boost to single family housing starts.

The first graph shows the month to month comparison for total starts between 2019 (blue) and 2020 (red).

Starts Housing 2019 and 2020Click on graph for larger image.

Starts were up 11.1% in September compared to September 2019.

Last year, in 2019, starts picked up towards the end of the year, so the comparisons were easy in the first seven months of the year..

Starts, year-to-date, are up 5.5% compared to the same period in 2019. This is below my forecast for 2020, but I didn't expect a pandemic!

I expect starts to remain solid, but the growth rate will slow.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily for several years following the great recession - then mostly moved sideways.  Completions (red line) had lagged behind - then completions caught up with starts- then starts picked up a little again late last year, but have fallen off the pandemic.

Single family Starts and completionsThe last graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions.

Housing Starts at 1.415 Million Annual Rate in September

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,415,000. This is 1.9 percent above the revised August estimate of and is 11.1 percent above the September 2019 rate of 1,274,000. Single-family housing starts in September were at a rate of 1,108,000; this is 8.5 percent above the revised August figure of 1,021,000. The September rate for units in buildings with five units or more was 295,000.

Building Permits:
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,553,000. This is 5.2 percent above the revised August rate of 1,476,000 and is 8.1 percent above the September 2019 rate of 1,437,000. Single-family authorizations in September were at a rate of 1,119,000; this is 7.8 percent above the revised August figure of 1,038,000. Authorizations of units in buildings with five units or more were at a rate of 390,000 in September.
emphasis added
Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) were down in September compared to August.   Multi-family starts were down 17% year-over-year in September.

Single-family starts (blue) increased in September, and were up 22% year-over-year.

Total Housing Starts and Single Family Housing StartsThe second graph shows total and single unit starts since 1968.

The second graph shows the huge collapse following the housing bubble, and then eventual recovery (but still historically low).

Total housing starts in September were below expectations - due to weakness in multi-family - and starts in July and August were revised down.

I'll have more later …

Free Webinar Tuesday: UCI Professor Chris Schwarz 2021 Economic and Financial Forecast at 2:00 PM ET

UCI Professor Chris Schwarz and I have presented together before.  Always interesting!

He will be offering his thoughts on the economy, Tuesday, October 20th at 11:00 AM PT (2:00 PM ET).

"2021 Economic and Financial Forecast Presented by the Newport Beach Chamber of Commerce and the UCI Paul Merage School of Business'

You can register here.

Tuesday: Housing Starts

Tuesday:
• At 8:30 AM ET, Housing Starts for September. The consensus is for 1.450 million SAAR, up from 1.416 million SAAR.

• At 10:00 AM, State Employment and Unemployment (Monthly) for September 2020

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