“Slow and steady” is the phrase that I have consistently used for many years when talking about growth in new home sales and housing starts. Even last month’s weaker than expected numbers did not cause me to deviate from this theme. My headline for that report:
“Nothing Wrong With The Housing Start Data Today”
Needless to say, it is pointless to make a major macro call based on the numbers from one month’s report. New homes sales data from last August to the end of the year is a perfect example of how wild this data can deviate month to month. These deviations seem to make everyone forget that it is the trend that matters.
With that said, the numbers in today’s report show the same slow and steady path. Nothing has changed in the housing story. Remember too, the current cycle numbers are working from the lowest levels of starts ever recorded in U.S. history. My prediction that we will not hit the 50 year moving average of starts this decade still stands. At no time from 2008-2019 will we get total starts to finish at the 50 year average. That is a 2020-2024 story at best.
Let’s share a moment of silence for those who called for 1.5 million in total housing starts in a calendar year this cycle. We had a lot of those calls since 2011. But slow and steady wins this race, not reversions of the mean in a short time when demand isn’t that strong.
Today the Census Bureau reported a gain in housing starts to an annual rate of 1,326,000 which is 7.3% increase from January 2017 numbers. We had a big push in multifamily units that will not be repeated in the next report . Still the numbers in this report are decent but we need more growth in single family units. This will only happen if we get more growth in new home sales, but that is currently at a 3 year low in terms of rate of growth but at cycle highs.
From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,326,000. This is
9.7 percent (±16.8 percent)* above the revised December estimate of 1,209,000 and is 7.3 percent (±15.0
percent)* above the January 2017 rate of 1,236,000. Single-family housing starts in January were at a rate
of 877,000; this is 3.7 percent (±9.7 percent)* above the revised December figure of 846,000. The January
rate for units in buildings with five units or more was 431,000.
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted
annual rate of 1,396,000. This is 7.4 percent (±1.2 percent) above the revised December rate of 1,300,000
and is 7.4 percent (±1.9 percent) above the January 2017 rate of 1,300,000. Single-family authorizations in
January were at a rate of 866,000; this is 1.7 percent (±1.3 percent) below the revised December figure of
881,000. Authorizations of units in buildings with five units or more were at a rate of 479,000 in January.
Privately-owned housing completions in January were at a seasonally adjusted annual rate of 1,166,000.
This is 1.9 percent (±7.8 percent)* below the revised December estimate of 1,188,000, but is 7.7 percent
(±11.9 percent)* above the January 2017 rate of 1,083,000. Single-family housing completions in January
were at a rate of 850,000; this is 2.2 percent (±8.3 percent)* above the revised December rate of 832,000.
The January rate for units in buildings with five units or more was 305,000.
We had a big boost in multifamily units, but I predict this trend will not continue. Nevertheless this short-term boost should keep a lid on rent inflation which has been stable for months now.
From Calculated Risk:
Keep an eye on new home sales now that interest rates are near cycle highs. New homes are much more expensive and make up a much smaller part of the market. Existing homes are cheaper, and are a bigger part of the market. Additionally, existing home sales are still being boosted by double the historical norm of cash buyers as a % of sales. This cannot be said for new home sales. We need at least 4-6 months of new home sales to get a clear picture of what the trend is — headline sales prints are too wild to be the basis of any real thesis.
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami
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