Is that a typo?
Did permits really fall that much, wink? No, they didn’t. Last month’s initial1,881,000 housing permit print was way too strong and deviated from the trend. This what usually happens with stronger or weaker data with new home sales and housing starts. It typically reverts to the trend. This is why 3-month averages are better than getting caught up with a headline.
Some context here:
From Census: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,682,000. This is 10.8 percent (±1.0 percent) below the revised January rate of 1,886,000, but is 17.0 percent (±1.4 percent) above the February 2020 rate of 1,438,000. Single-family authorizations in February were at a rate of
1,143,000; this is 10.0 percent (±0.8 percent) below the revised January figure of 1,270,000. Authorizations of units in buildings with five units or more were at a rate of 495,000 in February.
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 1,421,000. This is 10.3 percent (±10.5 percent)* below the revised January estimate of 1,584,000 and is 9.3 percent (±9.4 percent)* below the February 2020 rate of 1,567,000. Single-family housing starts in February were at a rate of 1,040,000; this is 8.5
percent (±9.3 percent)* below the revised January figure of 1,136,000. The February rate for units in buildings with five units or more was 372,000.
I know some will say its just the winter storm which has impacted the monthly data for sure . However, it’s also that the last month’s print was way too strong and we reverted back to the norm which happens a lot. We have a lot revisions in new home sales and housing starts data every month.
My best advice has always been the same.
To keep housing data very simple. Always track the monthly supply data for new homes. This has always been my number 1 data line. This was the key data line I used in the previous expansion to prove my case that housing would have its weakest recovery ever from years 2008-2019. However, the years 2020-2024 will be different.
Don’t forget these metrics for the new home supply.
4.3 months or lower, life is good.
4.4 – 6.4 months, life is ok; need new home sales to grow.
6.5 months and above, builders will pull back.
Currently, inventory is at four months with a three-month average of 4.06 months of supply, so it’s looking good.
This is the big reason why the HMI data is still high, even with high lumber prices.
Since the end of last summer, my big theme has been that housing data will moderate as last year’s parabolic rise was not normal, and the data is not realistic toward the real trend. We have seen some moderation in new home sales and HMI data but not enough in my view. The existing home sales and pending home sales are still too high. A good level for the existing home sales market is that it should head back toward 6,200,000 or lower. If not, then housing is doing better than I thought for 2021. Remember that we ended 2020 with 5,640,000 total existing-home sales. We have a huge gap between monthly sales print and total sales ended in 2020; this is all due to the Covid19 rebound.
Regarding housing starts, it hasn’t really moderated much at all, it has been the clear outperforming sector in all housing data. It broke out in February of 2020 and quickly came right back after the Covid19 pause. However, I am not a construction boom guy, I always believe mature economies have limits unless they deficit financing housing construction. I talked about this last year on HousingWire
When mortgage rates rise as it should, it will cool down housing data and the limits of construction will be apparent to us.
Regarding purchase application data today. Today is the last day of really decent normal comps before we go into the Covid19 madness and what it will do to all economic data. Ignore the stronger year over year data for the next nine weeks, and then for the majority of all of 2021, we should have negative year over year data as the comps will be too high to use as it would reflect the parabolic rise in housing data post the Covid19 lows.
For 2021 I was looking for this data line to have year over year growth between 1%-11% each week up until this point before Covid19 wrecks havoc on the data. We ended this period with a 9.72% trend growth, which is at the higher end of the growth range.
From Calculated Risk: https://www.calculatedriskblog.com/2021/03/mba-mortgage-applications-decrease-in_17.html
I really believe as rates rise, even though it’s historically low, it will cool this market down enough to create longer days on the market than the current pace of 21 days. This market is terribly unhealthy with its price growth, and this was always my number 1 concern with housing in the years 2020-2024.
So hopefully, as rates rise as they should! Things calm down a bit. I could be wrong here but I truly believe higher rates will do the trick.
Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.