Housing! It’s Alive It’s Alive

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First, we got the 1.4 million-plus housing permit print that is a big plus for housing. Second, context is critical. We need the revisions to hold this print and grow from here for me to get excited or take away my housing permit stalled theme.

Think V shape recovery in the housing data. Because the data got weaker toward the 2nd half of 2018. We had the potential to show a V shape recovery in all the housing data this year.

In that context, that is how we should look at housing for 2019. Nothing spectacular or booming but the fact that the headline recessionary data that housing was showing toward the end of 2018 has had a V shape recovery due to lower mortgage rates.

From Doug Short: 
https://www.advisorperspectives.com/dshort

Pending home sales had a V shape recovery.

September Pending Home Sales

New home sales are showing a V shape recovery.
August new home sales nominal

Existing home sales is showing a V shape recovery.

August Existing home sales

HMI data is showing a V shape recovery.

September HMI

The Census Bureau report released today shows housing starts for last month were 1,364,000 and permits came in 1,419,000. If we really want to see the next leg up in housing starts. We need to break above this 1,400,000 level in housing permits, and new home sales simply need to grow on a more consistent basis for years to come.

From Fred:
fred.stlouisfed.org/series/PERMIT
September Permits 5Y

The best part about this report is that single-family starts are starting to perk up again. This shouldn’t be a surprise as the monthly new home supply has been falling back down from the spike we saw late in 2018. We need this to continue, and for this to grow, we need new home sales to get above 737,000 and stay above that level. We can’t get this 700K one offprints and fall back down.

From Calculated Risk:
https://www.calculatedriskblog.com/2019/09/housing-starts-increase-to-1364-million.html

StartsShortAug2019

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

Building Permits
Privately‐owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,419,000. This is 7.7 percent (±1.2 percent) above the revised July rate of 1,317,000 and is 12.0 percent (±1.6 percent) above the August 2018 rate of 1,267,000. Single‐family authorizations in August were at a rate of 866,000; this is 4.5 percent (±0.8 percent) above the revised July figure of 829,000. Authorizations of units in buildings with five units or more were at a rate of 509,000 in August.

Housing Starts
Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,364,000. This is 12.3  percent (±10.2 percent) above the revised July estimate of 1,215,000 and is 6.6 percent (±11.6 percent)* above the  August 2018 rate of 1,279,000. Single‐family housing starts in August were at a rate of 919,000; this is 4.4 percent (±10.3 percent)* above the revised July figure of 880,000. The August rate for units in buildings with five units or more was 424,000.

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.

Since we got a V shape recovery in the housing data. The threat of having back to back negative housing starts data for 2020 is looking less likely. We are still down 2.7% year to date for single-family starts, and total starts are still down 1.8% year to date. This is why I had a question mark on housing starts in 2019. This was due to having too much supply of new homes for housing starts to grow in 2019.

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However, the monthly supply is down and in a more suitable area to talk about having flat to positive growth in 2020 for housing starts.

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

New home supply

All in all, its been a good year in housing in 2019. The V shape recovery in the data is very promising. The notion that lower mortgage rates didn’t help should be abolished from the housing discussion. Housing starts, and new home sales data can be very wild month to month, both positive and negative. Try to always look at the data on a 3-month average to get the real story. Make no mistake, the V shape recovery in the housing data is 100% too legit to quit.

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