Housing 2019: Don’t Call It Comeback

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The slow and steady cycle has been here for years, rocking the bubble boys and putting the crash sisters in fear.

Sorry, I am Gen X kid, if you don’t get that reference.

The V Shape Recovery in housing in 2019. That is the theme that I presented at the recent 2019 Economic throw down event in Orange County.  The only reason we are even having this conversation is because of the weakness we saw in housing late last year. Especially in the new home sales market, which looked like it was about to flag a recessionary data line.
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A link to the event can be found here:

https://loganmohtashami.com/2019/11/17/2019-economic-throw-down-video/

Housing starts, I focus on the fact that we have been stalling for over 30 months in this sector. Are we finally breaking out of 1,400,000 permits?

From Fred:
https://fred.stlouisfed.org/series/PERMIT
November permits

Not just yet!

This is where I disagree with my fellow housing people. I have always stressed a slow and steady cycle for years, but we legitimately had a recessionary spike in monthly supply late last year. This is a data line that isn’t focused on too much, but it is number one on my list.

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

November Monthly Supply

Even with the recovery in new home sales and a much-needed drawdown in supply, all we did is recovery from a recession red flag low put in play last year.  Single-family starts are still down 1.3% year to date. Housing starts are just down 0.6% year to date.

The recovery is a considerable deal in my mind, so we shouldn’t dismiss this fact. One of my recessionary red flags is housing starts falling into a recession. Now, we can forecast flat to slight growth in 2020.

However, don’t forget, this has been the weakest new home sales and housing starts cycle ever, and we should never lose focus on why this is happening. Even the rebound in single-family starts with mortgage rates dropping 1.5% roughly has just made a recovery from the weakness last year. Also, year over year comps is going to be comfortable in November and December due to the weakness we saw last year.

From Calculated Risk:
https://www.calculatedriskblog.com/2019/11/housing-starts-increased-to-1314.html
StartsShortOct2019

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

Building Permits
Privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,461,000. This is 5.0 percent (±1.7 percent) above the revised September rate of 1,391,000 and is 14.1 percent (±2.1 percent) above the October 2018 rate of 1,281,000. Single‐family authorizations in October were at a rate of  909,000; this is 3.2 percent (±1.0 percent) above the revised September figure of 881,000. Authorizations of units in buildings with five units or more were at a rate of 505,000 in October.

Housing Starts
Privately‐owned housing starts in October were at a seasonally adjusted annual rate of 1,314,000. This is 3.8 percent (±8.7 percent)* above the revised September estimate of 1,266,000 and is 8.5 percent (±10.8 percent)*
above the October 2018 rate of 1,211,000. Single‐family housing starts in October were at a rate of 936,000; this is  2.0 percent (±6.3 percent)* above the revised September figure of 918,000. The October rate for units in buildings with five units or more was 362,000.

All in all, 2019 was a successful year for housing even though existing home sales are still trending slightly negative with housing starts. However, we shouldn’t overhype this housing data. The housing sector is famously known for over hyping positive data, so I am just throwing a reality check out there.

Going out for 2020 and beyond, what is good for the economy can raise bond yields and rates. 4.75% -5% created a mini recessionary data line, and we spent the entire year of 2019 working off the excess housing we had in this sector, and still, housing starts are a negative year to date. The builders won’t forget this, and neither should you. The slow and steady stories continue, but the low bar that housing enjoyed for many years in this expansion is starting to fade away.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/11/19/new-residential-building-permits-1-461m-in-october

November Permits total

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