Housing Starts Moderation To Be Expected

To be dead honest here, not much is happening with housing starts right now, this report had good permits, but we are kind of in a lull here after an epic rise in housing starts and permits from last year. Since last summer, this runs with my theme that all housing data will moderate from their epic run in the 2nd half of 2020. Also, don’t forget, ignore all year-over-year data as the Covid19 comps will show insane year-over-year growth due to the low bar. 

From Census: https://www.census.gov/construction/nrc/index.html?CID=CBSM+EI

Building Permits:
Privately‐owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,760,000. This is 0.3 percent (±1.2 percent)* above the revised March rate of 1,755,000 and is 60.9 percent (±1.8 percent) above the April 2020 rate of 1,094,000. Single‐family authorizations in April were at a rate of 1,149,000; this is 3.8 percent (±1.0 percent) below the revised March figure of 1,194,000. Authorizations of units in buildings with five units or more were at a rate of 559,000 in April.

Considering how hot Lumber prices have been the past few months, not too bad with permits data during that timeframe. Lumber prices have been falling the past few days, which is a blessing. 

 One thing to remember now is this new expansion is much different than the previous one. The housing sector enjoyed a shallow bar for housing permits to work from, and we had the weakest housing recovery cycle ever. Now, that is no longer the case in this expansion. So, when rates rise, we need to be more mindful of the housing permits and new home sales data. Don’t assume that because total inventory levels are low for the existing home sales market, this gives a clear path for unbridled growth in this sector.

Housing Starts
Privately‐owned housing starts in April were at a seasonally adjusted annual rate of 1,569,000. This is 9.5 percent (±10.8 percent)* below the revised March estimate of 1,733,000, but is 67.3 percent (±21.6 percent) above the April 2020 rate of 938,000. Single‐family housing starts in April were at a rate of 1,087,000; this is 13.4 percent (±7.9 percent) below the revised March figure of 1,255,000. The April rate for units in buildings with five units or more was 470,000.

Some softness month to month with single-family starts; this often happens on a month-to-month basis, especially when the last month had a solid print. However, with revisions in place, single-family starts haven’t shown much growth after the torrid run from last year. Again, think moderation from that epic run-up. 

In time all housing data will find a proper trend to work from. We are in that process with the housing starts data.

The Builders confidence index also tries to find that moderating level as the recent data showed a month-to-month unchanged status. I still believe we can see this data line fall once rates rise, but for now, it was steady after a massive parabolic move last year. Don’t forget, rates beat lumber.

From AdvisorPerspective:

To keep things very simple with the new home sales and housing starts data, I use this rule to make sure people stay in their lanes. Below is the monthly supply data for the new home sales market. You want to look at this data on a 3 month average because some reports can show extreme swings on the monthly supply data.

Currently at 3.86 months.

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.

We are still good with this data line.

Also, remember having monthly supply below 4.3 months with rising sales is something we were not able to achieve in the previous expansion, only years 2020/2021 has this occurred.

Existing home sales are coming up Friday. One note on purchase application data this year. On paper, it looks like the best year in a long time, working at pre-cycle highs during the heat months of this data line referred to as the 2nd week of January to the first week of May.

From Calculated Risk:

Typically what happens after May is that total volumes always fall. This didn’t happen last year, of course, due to Covid19. Don’t forget, due to the parabolic nature of housing data in the 2nd half of 2020, purchase application data will be mostly negative year over year due to high comps. So far this year, On average, we have had 21% year-over-year growth from last year. However, after making some Covid19 adjustments, especially to the early part of the year, which had on average 17% year over year growth (5 weeks) working off tough comps too. I would look at this year with slight mid-single-digit growth so far. We never got back to the proper amount of existing home sales last year, working off the Pre-Covid19 trend. I did leave this open to see more make-up demand early in the year, which explains that impressive year-over-year growth earlier this year. It still looks like we should get slight growth in existing home sales year over a year working from a 5,640,000 total existing-home sales print in 2020. I expect some monthly sales print to come below 5,840,000 this year, but demand looks fine all in all, and 2021 total home sales look to be higher than 2020. My rule of thumb for the years 2020-2024 is that if total home sales new and existing close above 6.2 million, consider that good. This is something we couldn’t do from the years 2008-2019. So far, 2020 and 2021 get passing grades.

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.