Housing Permits Stalled 31 months

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The Census Bureau report released today shows housing starts for last month were 1,191,000 and permits came in 1,336,000. Housing starts were a disappointment while permits had a good showing. However, housing permits have been stalling out for 31 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
AUgust Permits stall

While some might think housing has peaked, weren’t’ in 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. Also, 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 recent revision softness in the new home sale report we got last month. We are still beating my estimates for the year. This is a massive plus for housing this year and next.

“New Home Sales Look Fine If You’re?”

https://loganmohtashami.com/2019/07/24/new-home-sales-look-fine-if-youre/

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. I can’t believe people are actually saying lower rates aren’t boosting housing. We had a clear new home sales recessionary data line late last year, which has reversed course due to lower rates. This is a big deal for this sector.

From Fred:
https://fred.stlouisfed.org/series/MSACSR

JULY Monthly Supply

Single-family starts have been showing some weakness this year. This 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 31 months for single-family starts.

From Calculated Risk:
https://www.calculatedriskblog.com/2019/08/housing-starts-decline-to-1191-million.html
StartsShortJuly2019

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

Building Permits

Privately‐owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of  1,336,000. This is 8.4 percent (±1.1 percent) above the revised June rate of 1,232,000 and is 1.5 percent (±1.4  percent) above the July 2018 rate of 1,316,000. Single‐family authorizations in July were at a rate of 838,000; this is
1.8 percent (±1.4 percent) above the revised June figure of 823,000. Authorizations of units in buildings with five units or more were at a rate of 453,000 in July.

Housing Starts

Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,191,000. This is 4.0 percent  (±8.0 percent)* below the revised June estimate of 1,241,000, but is 0.6 percent (±8.2 percent)* above the July 2018 rate of 1,184,000. Single‐family housing starts in July were at a rate of 876,000; this is 1.3 percent (±11.8 percent)*  
above the revised June figure of 865,000. The July rate for units in buildings with five units or more was 303,000.

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 347,000 with 7,505,000 construction workers. Total employment for construction is roughly 221,000 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
August JOLTS 347,000 construction

From Fred:
https://fred.stlouisfed.org/series/USCONS
August contrcution jobs

From Fred:
https://fred.stlouisfed.org/series/CES2023610001
August contruction Resi

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.  The big key take away you should get from 2019 is that lower mortgage did boost housing in a big way if you know where to look. Both existing home sales and new home sales were trending lower when rates were higher than the trend sales today.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/08/16/new-residential-building-permits-1-336m-in-july
August Permits

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