The theme that I am trying to rely on recently for housing is the V shape recovery we have seen this year. It began at the start of the year. Housing data got weaker on all fronts outside of the purchase application data late last year, and now we have taken that weakness offline as mortgage rates dropped noticeably year over year.
Now, we have to show the discipline that a few people have not regarding the real story is housing, which is a slow, prolonged, but steady cycle. Do not make the same mistake certain people have done and extrapolate a booming period as mortgage rates have gone lower. Not much has really changed in housing outside of this V-shaped recovery, which is only happening due to the weakness we saw last year.
The Census Bureau report released today shows housing starts for last month were 1,256,000, and permits came in 1,387,000. 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.
As we can see below, multifamily construction has gone nowhere since the tax credit expiration of 2015 but holding up near cycle highs. As the monthly supply of new homes come down, single-family start production can pick up again. However, let’s not kid ourselves, not much has been happening for single-family starts for 2 years now.
From Calculated Risk:
Privately‐owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,387,000. This is 2.7 percent (±1.3 percent) below the revised August rate of 1,425,000, but is 7.7 percent (±2.4 percent) above the September 2018 rate of 1,288,000. Single‐family authorizations in September were at a rate of 882,000; this is 0.8 percent (±0.8 percent)* above the revised August figure of 875,000. Authorizations of units in buildings with five units or more were at a rate of 470,000 in September.
Privately‐owned housing starts in September were at a seasonally adjusted annual rate of 1,256,000. This is 9.4 percent (±9.4 percent)* below the revised August estimate of 1,386,000, but is 1.6 percent (±11.6 percent)* above the September 2018 rate of 1,236,000. Single‐family housing starts in September were at a rate of 918,000; this is 0.3 percent (±9.3 percent)* above the revised August figure of 915,000. The September rate for units in buildings with five units or more was 327,000.
Single-family starts are still down 1.8% year to date as we are still working through the excess housing supply created late last year. However, we are down to a level where we can see flat to slightly positive growth in 2020. As long as monthly supply doesn’t go over 6.5 months like it did last year, we should be ok. The monthly supply for new homes is still high for this cycle but not in any danger area any longer. This cycle has always been about a lack of demand, not supply for the new home sales sector.
In general, all housing data have a V shape recovery to it.
Now what? We need to see if we can push more growth in 2020 because the same reasons that have made this cycle the weakest new home + housing start cycle ever in history are still with us. However, 2020 is coming, and what we have ahead of us is the most significant demographic patch for home buying ever in our history. Ages 25-31 are massive, and the median age of a first time home buyer is 32 now. This group I look at them as replacement buyers for existing homes, but you can capture some of this demographic action for the new home sales sector as well.
From Doug Short:
The economic throwdown rematch will be happening this year on November 5th, and Dr. Jessica Lautz from the National Association Of Realtors will be part of the panel this year.
Tickers are available now: https://www.eventbrite.com/e/economic-throwdown-the-rematch-tickets-74968347345?aff=ebdssbeac
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 facebookpage https://www.facebook.com/Logan.Mohtashami