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CASE-SHILLER | HPI - THE GREAT MODERATION

Takeaway: CS HPI registers a 3rd month of deceleration, while support continues to come primarily from the low end.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

CASE-SHILLER | HPI - THE GREAT MODERATION - Compendium 062816
 

Today’s Focus: April Case-Shiller HPI 

 

The Data:  Case-Shiller HPI data for April released this morning – which represents average price data over the February-April period – extended the trend of flat-to-slowing price growth as the 20-City series was largely flat sequentially while the National series decelerated for a 3rd consecutive month, slowing -10bps sequentially to +5.0% YoY.  The negative 2nd derivative trend in the Nation Series – where growth is now -30bps of the Jan ’16 peak rate-of-change – accords with the FHFA HPI series for April released last week which showed price growth decelerating -30bps sequentially to +5.9% YoY.

 

Low End Support: Notably,  the Case Shiller Price tier data show that the low end – while slowing modestly the last few months – continues to buttress price growth in the composite.  Price growth across both the Mid and High Tiers began to slow ~3Q15 as the pace of inventory decline bottomed (see charts 5/6 below).  From here, it will be interesting to observe price action at the entry level as growth in 1st time buyer demand continues to slow at the margin.  According to the latest NAR data, transaction volume growth for first-time buyers was actually negative (-2% YoY) in May.  

 

HPI Tug-O-War | Advantage Demand: As we profiled in our 2Q Themes presentation and illustrate in charts 3 & 4 below, price remains in an interesting spot with the supply environment arguing for moderate price acceleration while lagged demand trends imply moderate deceleration.  Over the TTM those countervailing forces have largely produced a stalemate with demand trends culling a slight advantage.  With price performance across housing equities strongly correlated to 2nd derivative price trends historically, current HPI trends sit as a modest drag for the complex.  

 

 

CASE-SHILLER | HPI - THE GREAT MODERATION - CS National vs 20City

 

CASE-SHILLER | HPI - THE GREAT MODERATION - FHFA   CS YoY TTM

 

CASE-SHILLER | HPI - THE GREAT MODERATION - Demand vs Price

 

CASE-SHILLER | HPI - THE GREAT MODERATION - Supply vs Price

 

CASE-SHILLER | HPI - THE GREAT MODERATION - CS HPI by Price Tier

 

CASE-SHILLER | HPI - THE GREAT MODERATION - Inventory by Price Tier YoY Chg

 

CASE-SHILLER | HPI - THE GREAT MODERATION - EHS 1st Time Buyers

 

 

 

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

 

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


HOUSING: PHS | Rebasing or Rogue?

Takeaway: After a string of 0-2% Y/Y growth prints, PHS showed a pulse in April, fueled by strong growth in the Northeast.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

HOUSING: PHS | Rebasing or Rogue? - Compendium 052616 



Today’s Focus: April Pending Home Sales 

Pending Home Sales posted its largest sequential increase in 5 ½ years in April, taking the Index to a new 10Y high.  On a seasonally adjusted basis, year-over-year growth accelerated to +4.6% YoY from ~+0% over the last 3 months.  In contrast, year-over-year growth on a NSA basis decelerated for a 2nd consecutive month to +2.9% YoY.  Regionally, the +6.8% rise in the South and the +10.1% increase in the West drove the sequential strength while the 10.1% YoY gain in the Northeast supported the YoY acceleration.   

 

Frankly, we were surprised by the magnitude of strength in the April data as we were looking for something in the -2% to +2% range.  The key question out of the print is whether we have, in fact, rebased to a higher level of activity or whether April represents an outlier.  The preponderance of domestic macro, where stall speed remains the predominant trend, suggests the latter while the similarly strong (albeit distorted) NHS report on Tuesday hints at the former.    For sure, rates remain low, labor trends decent and the longer-term opportunity for housing compelling but that’s been broadly true for most of the last four years and why that confluence of factors would suddenly manifest in multi-year/multi-decade high growth rates precisely in April isn’t obvious. 

 

A few other quick considerations:

  • Mean Reversion:  Mean reversion in Pending Sales has already occurred and at 116 on the index we are now +13.5% above the long-term average with further upside seemingly constrained.  The primary caveat is that the “long-term” only extends back to 2000 and the advent of the PHS series (see 1st chart below).  The 2nd chart below – which shows single family existing home sales adjusted for population growth -  offers some longer cycle context.  With sales at 4.78MM units as of the latest month we sit +3.3% above the long-term average with 24% upside to average peak levels and -34% downside to average cycle trough levels.  Note that sales are population adjusted and the average peak calculation excludes the bubble peak in 2005/06. 
  • Good = Bad:  To the extent strong Housing data drives policy action out of the Fed the feedback loop is a negative one as housing related equities are marked underperformers during tightening cycles.  
  • EHS:  The gain in PHS in April augurs sequential strength for EHS in May.  A full recoupling between the two series implies +5.1% upside in EHS to 5.71 MM units.   We'll get May EHS on 6/22.

 

HOUSING: PHS | Rebasing or Rogue? - PHS LT

 

HOUSING: PHS | Rebasing or Rogue? - EHS SF LT Pop Adjusted

 

HOUSING: PHS | Rebasing or Rogue? - EHS vs PHS

 

HOUSING: PHS | Rebasing or Rogue? - PHS YoY NSA   SA

 

HOUSING: PHS | Rebasing or Rogue? - PHS Index   YoY TTM

 

HOUSING: PHS | Rebasing or Rogue? - PHS Regional YoY

 

 

 

 

About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.

 

Frequency:

The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake


PHS | What's the Catalyst?

Takeaway: Mild weather helped juice the March PHS print, but even so total contracts signed for existing homes only rose 1% Y/Y.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

 

PHS | What's the Catalyst? - Compendium 042716

 


Today’s Focus: March Pending Home Sales 

Pending Home Sales in March rose +1.4% sequentially and accelerated +70bps sequentially to +1.4% year-over-year.  Much of the strength was driven by the strong +18.4% comp out of the Northeast, which likely has weather written all over it.

 

That +1% YoY growth could be considered “a beat” speaks well to the prevailing environment.

 

If there was an official Hedgeye Housing Manifesto, the primary prescriptive notion would be that everything that matters happens on the margin.  That is, the forecasting goal centers on divining better/worse not good/bad and front-running those inflections. 

 

The current challenge – with HMI, NHS, Starts, & PHS all flat for the last year - is that nothing is really happening at the margin and a crawling 2nd derivative convergence to zero isn’t alpha’s playground. 

 

To frame-up and put some quick context around the nearer-term setup:  Demand comps in the existing market get harder the next few months and, at current levels of activity, transaction volumes would be down ~-1% in Apr/May.  If continued sequential improvement were to persist, demand growth would run 0% to +2% YoY over the next quarter+. 

 

So, -2%-to-+2% is your fundamental demand backdrop through the balance of 1H16.   Note, also, that (unlike NHS/Starts) existing sales have already fully mean-reverted back above average historical levels of activity so the easy asymmetry/upside has already been captured. 

 

Summarily, with demand stagnating, price growth beginning to roll, supply constraints persisting, the preponderance of domestic macro data decelerating and no discrete, large-scale catalysts we're not seeing much for housing bulls to hang their hat on here presently. 

 

 

 

 PHS | What's the Catalyst? - PHS Units   YoY

 

PHS | What's the Catalyst? - PHS Regional YoY

 

PHS | What's the Catalyst? - PHS LT

 

 

 

About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.

 

Frequency:

The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake


New Home Sales | Stagnation

Takeaway: March New Home Sales figures fall sequentially and continue the sideways trend of no growth broadly present across the US Housing complex.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

New Home Sales | Stagnation - Compendium 042616
 

Today’s Focus: New Home Sales for March

New week, same data trend as 'the nothing' continues to propagate across domestic housing activity.  New Home Sales declined -1.5% sequentially and were (only) up +5.4% YoY against easy March comps.  Similar to Starts & Builder Confidence, New Home Sales volumes over the TTM have completely flatlined (1st chart below).

  • Inventory:  continues to rise with For Sale Inventory up +3% MoM and +19.8% YoY; 242K Units in march = highest since October 2009.
  • Sales By Price Tier:  While the slowdown in the lower end (Sub-300K) has moderated the trend toward deceleration continues to characterize the middle and higher-end.  

In short, New Home Sales closed 1Q on a stagnation-ary note and continue the sideways trend of no growth broadly present across the US Housing complex.

 

 

 New Home Sales | Stagnation - NHS Units   YoY TTM

 

New Home Sales | Stagnation - NHS By Price Tier YoY

 

New Home Sales | Stagnation - NHS Inventory

 

New Home Sales | Stagnation - NHS Mean   Median Price

 

New Home Sales | Stagnation - NHS vs EHS Price Spread

 

New Home Sales | Stagnation - EHS to NHS Ratio

 

New Home Sales | Stagnation - NHS LT

 

 

 

About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

   

 

Joshua Steiner, CFA

 

Christian B. Drake

 


EHS | Barbell Weakness

Takeaway: The high end and low end of the Housing market are slowing down. Other than that, everything's good.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

EHS | Barbell Weakness - Compendium 042016

 

 

Today's Focus: March Existing Home Sales

Back to a Tie Game between EHS & PHS: We essentially got exactly what we expected out of EHS in March as existing sales fully recoupled to Pending Sales (first chart below).

 

In a Nutshell: 

  • Inventory is still tight
  • Sales growth is decelerating across all price tiers
  • Growth in 1st time buyers sales is still slowing (albeit against a pretty hard March ’15 comp … trend probably improves modestly over next 3 months as comps ease)
  • A solid sequential print only got you to +1.5% YoY with progressively harder comps from here 

 

The Details:

Existing Home Sales were up 5% sequentially in March after being down 7% in February, and decelerated to +1.5% YoY (roughly in-line with Feb's +2.2% YoY growth).   

 

On the commentary side, Lawrence Yun, NAR’s chief economist, made the following points (emphasis added): 

 

Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.

 

Additionally, a segment of would-be buyers at the upper end of the market appear to have been spooked by January's stock market correction.

 

With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now. Unfortunately, the same underlying deterrents impacting their ability to buy haven't subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets.

 

 

Effectively what Yun's describing is a barbell issue, where the low end and high end are both slowing down - one out of necessity and the other out of fear. We've detailed both these issues at length in our Themes deck. 

 

Supply Stagnation:  On the inventory side, unit supply rose +6% sequentially to 1.98MM but remained -1.5% YoY (note: inventory is non-seasonally adjusted).  The net of volume rising 1.5% and supply falling 1.5% drove inventory on a months-supply basis to 4.5-months, down from 4.6-months a year earlier, though up from 3.9mos, 4.0mos and 4.4mos in Dec, Jan, Feb, respectively. As a reminder, markets are generally regarded to be in balance (in balance means that HPI equates to zero in real terms) at a supply level of around 6 months.

 

Looking Ahead:  As EHS are essentially just PHS on a 1-2mo lag, we’re more interested in the Pending Home Sales data (Mar release = next Wednesday, 4/27) as the cleaner, more real-time read on the underlying trend in purchase demand in the existing market.  Historically, we've used MBA purchase application volume as the leading indicator, but for reasons not entirely clear, MBA's usefulness has declined as it has increasingly decoupled from the trends in PHS/EHS over the past year.

 

As it stands, PHS have largely decelerated for 10-months off the April 2015 RoC peak and we continue to expect sales in the existing market to decelerate throughout 1H16 with a strong possibility for negative volume growth against peak PHS comps in April/May.  

 

  

EHS | Barbell Weakness - EHS vs PHS

 

EHS | Barbell Weakness - EHS 1st Time Buyer Sales

 

EHS | Barbell Weakness - EHS Units   YoY TTM

 

EHS | Barbell Weakness - EHS Inventory Months Supply

 

EHS | Barbell Weakness - EHS Inventory Units

 

EHS | Barbell Weakness - EHS Inventory Units YoY

 

EHS | Barbell Weakness - EHS YoY By Price Tier

 

 

 

About Existing Home Sales:

The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.

 

Frequency:

The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.

 

 

  

Joshua Steiner, CFA

 

Christian B. Drake


BUILDER CONFIDENCE | Suspended Animation

Takeaway: Builder sentiment held at 10-month lows in April. Forward expectations bounced +1pt, but remain well below their Oct 2015 highs.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

BUILDER CONFIDENCE | Suspended Animation - Compendium 041816
 

Today's Focus: March NAHB HMI (Builder Confidence Survey)

Builder Confidence in April was static at 58 against unrevised March estimates, holding at 11-month lows for the third straight month and marking a 6-month past the cycle peak of 65 recorded in October.

 

Across the Survey Indicators, Current Sales moved lower from 65 to 63, putting in their lowest reading since May of last year. Meanwhile, there was a +1pt gain in Forward Expectations and also a +1pt gain in Buyer Traffic, but both those surveys remain below their LTM averages.

 

Regionally, all four US regions posted sequential declines. The Northeast and West both fell -2pts, while the Midwest and South each registered -1pt declines. 

 

Commentary was largely generic, referencing jobs and rates as broadly positive for the fundamental backdrop:

 

NAHB CEO Robert Dietz:  “Builders remain cautiously optimistic about construction growth in 2016. Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months ahead.”

 

In short, nothing particularly remarkable in the April release as Builder Confidence remains past peak and the larger demand trend across both the new and existing markets remains one of deceleration. 

 

Looking to March Housing Starts data tomorrow, we expect the number to remain strong from a rate-of-change perspective as we lap the depressed, severe weather comps from last February/March.  

 

Looking more broadly at both US Housing and the US Economy, they could best be summarized as a whole lotta “not much” going on at present.  

 

 

 

BUILDER CONFIDENCE | Suspended Animation - NAHB TTM

 

BUILDER CONFIDENCE | Suspended Animation - NAHB LT

 

BUILDER CONFIDENCE | Suspended Animation - NAHB Regional

 

BUILDER CONFIDENCE | Suspended Animation - NAHB Survery Indicators 

 

 

 

 

About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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