Housing Permits Stalled 30 months

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The Census Bureau report released today shows housing starts for last month were 1,253,000 and permits came in 1,220,000. Housing permits have been stalling out for 30 months now because once again new home sales are still too low. As evident below with the permit chart, we haven’t really gone anywhere for some time now.

From Fred:
https://fred.stlouisfed.org/series/PERMIT
July Permits 5 year

While some might think housing has peaked, we are not at any risk of a significant collapse in starts in 2019 or 2020. The number of starts and permits needs to be taken in the context of higher labor costs, recent softness in new home sales which is turning positive and increases in existing inventory, which provides less expensive homes compared to the new homes.

On a hugely positive note for housing,  I recently took this sector out of the penalty box

My rule of thumb for the new home sales market is the following:

” If monthly supply breaks over 6.5 months and the sales trend is negative, year over year, then we may have an issue.”

Right now the key for housing starts is that new home sales stay above 640,000 on a 3 months average and monthly supply stays below 6.5 months on a 3 months average, if this doesn’t happen we got some issues, folks. However, for now, even with the weak new home sale report we got last month, we are still beating my estimates for the year, and this is a plus.

“New Home Sales Still Beating My Estimates”

https://loganmohtashami.com/2019/06/25/new-home-sales-still-beating-my-estimates/

At this stage of the economic cycle, the housing starts sector needs a lot more new home sales to get excellent growth perking up again.

From Fred:
https://fred.stlouisfed.org/series/MSACSR
June Monthly Supply

Single-family starts have been showing some weakness this year, which shouldn’t be surprising as we have been working through the excess inventory created late last year. Honestly, not much has been going on for the previous 30 months for single-family starts.

From Calculated Risk
https://www.calculatedriskblog.com/2019/07/housing-starts-at-1253-million-annual.htmlk

StartsShortJune2019

From Census: 
https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Building Permits

Privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,220,000. This is 6.1 percent (±1.2 percent) below the revised May rate of 1,299,000 and is 6.6 percent (±1.1 percent) below the June 2018 rate of 1,306,000. Single‐family authorizations in June were at a rate of 813,000; this is 0.4 percent (±1.0 percent)* above the revised May figure of 810,000. Authorizations of units in buildings with five units or more were at a rate of 360,000 in June.

Housing Starts

Privately‐owned housing starts in June were at a seasonally adjusted annual rate of 1,253,000. This is 0.9 percent (±7.9  percent)* below the revised May estimate of 1,265,000, but is 6.2 percent (±7.8 percent)* above the June 2018 rate of 1,180,000. Single‐family housing starts in June were at a rate of 847,000; this is 3.5 percent (±9.6 percent)* above the revised May figure of 818,000. The June rate for units in buildings with five units or more was 396,000.

For total housing starts to grow faster, we will need more growth in single-family starts. For acceleration in single-family starts, we need a lot more new home sales. I don’t subscribe to the idea that new home sales are so strong that they warrant a boom in housing construction. In fact, my call that housing starts won’t reach 1,500,000 in this decade looks good right now. The modest growth in new home sales needs to be considered in the context of the current economy. We are in the longest job expansion ever in U.S. history,  the longest economic expansion, with mortgage rates mostly below 5% since early 2011.  The slow and steady housing start story will continue as long as new home sales grow.  The number of construction job openings are at 369,000 with 7,508,000 construction workers. Total employment for construction is roughly 212,000 jobs away from what it was during the peak of the housing bubble when housing starts were 1,000,000 units more than they are today.

From BLS: 
https://www.bls.gov/charts/job-openings-and-labor-turnover/opening-industry.htm
July Construction JOLTS 369,000

From Fred:
https://fred.stlouisfed.org/series/USCONS
July construction workers

From Fred:
https://fred.stlouisfed.org/series/CES2023610001
July resi workers

While this hasn’t been the best few months for housing starts, keep in mind that the trend matters more than anyone report, either positive and negative. For the first time in this cycle, I can say that the recent trends don’t look healthy. Builders can help boost demand by including smaller, less expensive homes in their offerings and provide proper discounting. New home sales have recovered enough recently to get them out of my penalty box, which is a substantial positive for housing.  For the rest of the year, I will be interested to see if the supply stays below 6.5 months and we can hold the sales trends over 640,000. That would be a big positive next year for housing starts.  One note, the HMI data has gotten this housing chart out of the recessionary dive. However, it hasn’t really been moving much higher after the first big move. Keep an eye out on this index.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/07/16/nahb-housing-market-index-builder-confidence-holds-firm-in-july
July HMI data

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