New Residential Construction Report: March 2012

Today’s New Residential Construction Report showed weak results in March with single family permits declining from February while starts also declined over the same period.

Single family housing permits, the most leading of indicators, declined a notable 3.5% from February to 462K single family units (SAAR), but increased 17.6% above the level seen in March 2011 but still remained  an astonishing 74.30% below the peak in September 2005.

Single family housing starts fell 0.2% from February to 462K units (SAAR), but climbed 10.53% above the level seen in March 2011 and remained a stunning 74.66% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings April 2012

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a decline of all measures in April with the composite HMI index falling to 25 while the "buyer traffic" index declined to 18.

While all indicators have made notable increases as of late, it's important to note that conditions still remain distressed by historic standards though, the last few months results appears to indicate a major change in the builder sentiment.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

The Empire State Manufacturing Survey: April 2012

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed a notable deceleration of current assessments of manufacturing activity and a continued decline to future assessments with the current activity index falling to 6.56 while future activity declined to 43.12.

Current prices paid declined to 45.78 while current new orders weakened to 6.48 and assessments of future new orders improved to 45.78.

Conspicuous Correlation: Retail Sales March 2012

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.8% from February and an increase of 6.5% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 1.61% from February and increased 5.91% above the level seen in March 2011 while, adjusting for inflation, “real” discretionary retail sales increased 3.23% over the same period.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

University of Michigan Survey of Consumers April 2012 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for April indicated a decline in consumer sentiment from the prior month with a reading of 75.7 but improvement on an annual basis with the level increasing 8.45% above a year ago while one year inflation expectations eased to 3.4%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) climbed to 72.5, and the Current Economic Conditions Index declined to 80.6.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.

Reading Rates: MBA Application Survey – April 11 2012

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined 4 basis points to 3.98% since last week while the purchase application volume declined 0.5% and the refinance application slumped 3.1% over the same period.

With rates jumping in recent weeks and housing activity remaining largely weak, it will be interesting to see if concern over housing leads the doves on the FOMC to further promote QE3 in an effort to keep long rates at historically low levels. 

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Radar Watching: February 2012

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines with prices breaking to new lows with each passing day.

The latest data shows that as of early-February, prices have declined 4.43% below the level seen in February 2011 continuing the slump through the winter months in a similar manner to past years while likely just reaching the lows of the season.

Look for future reports to indicate flat pricing as the data moves into the more active spring months leading to a new seasonal upswing as we approach early summer.