Housing Starts Rebound, For How Long?

The Mortgage Corner

The Conference Board’s Index of Leading Indicators that predicts future growth says it is being boosted by a rebound in housing starts, which means more badly needed new homes being built. Its June report posted a 0.6 percent gain. Permits had been soft through most of the spring before gaining sharply in this week’s housing starts report.

But there’s concern whether this might last, though I predict full employment and the prospect of low interest rates for the rest of this year could prolong this trend.

Starts for all homes jumped 8.3 percent in June to a 1.215 million annualized rate with permits up 7.4 percent to a 1.254 million rate. As weak as the details were in the prior report, is how strong they are in the latest. Single-family permits rose a huge 4.1 percent to an 811,000 rate with multi-family permits up 13.9 percent to 443,000. Permits are strongest in the Midwest followed by the West and South.

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Graph: Econoday

Actual starts for single-family homes rose 6.3 percent in June’s report to 849,000 with multi-family up 13.3 percent to 366,000. The Northeast is in front followed by the Midwest. Starts in the West are up slightly and are down noticeably in the South, probably due to the errant weather, including floods and a few tornadoes.

The LEI tracks 12 indicators of growth, including interest rates spreads and hours worked. The fact that housing permits provided the biggest boost to the LEI means that housing is probably a leading indicator of future growth as it has been in past recoveries.

So why has it taken so long for housing construction and sales to catch fire? The busted housing bubble left millions of vacant homes that first had to be reabsorbed into the housing market.

Then all those homeowners that lost their homes had to reestablish their credit bonafides. This is while Fannie Mae and Freddie Mac haven’t sufficiently lowered their credit and loan qualifying requirements that would add some 1 million prospective homebuyers to the list of eligibles, according to the Urban Institute.

Then there is the millennial generation saddled with too much student debt that the current administration doesn’t want to forgive or amend. The list goes on and on, in other words, for what needs to be done to bring back more affordable housing.

The NAHB, or National Association of Home Builders also puts out a builder sentiment index that attempts to predict future activity, but which may lag housing starts data. The report cites the effects of high lumber costs on home builders in showing construction, for instance, but shows slower activity evenly divided among the 3 components in its index.

Higher future sales still lead for 73 percent of respondents with higher present sales at 70 percent of those polled. But only 48 percent report higher traffic, which is below breakeven 50 for the 2nd month in a row. Regionally, the West remains the strongest for homebuilders followed by the Midwest and South and the Northeast far behind. So is optimism leading reality, if fewer buyers are lookng?

These are still terrific numbers, however, and it looks like lower interest rates are here for the rest of this year, with the conforming 30-year fixed rate holding at 3.50 percent for one origination point in California.

Why are rates still at such record lows with the Fed having already raised their overnight rate 3 times to 1.25 percent? Consumers aren’t borrowing more, which would increase loan rates.

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Graph: Econoday

For instance, retail sales are still stuck below what is considered to be a robust demand for more goods and services. Annual sales are under 3 percent for the first time since August last year with the 3-month average below 4 percent. And 6 percent annual sales increases have been the norm during past recoveries.

This really means a certain middle and upper segment of income earners are doing well, but not the rest of US. The boosting of the minimum wage in the more prosperous cities and states is a start, but that is happening in only a handful of those states, as I’ve said.

Much more needs to be done, in other words, to help the still record income inequality that haunts this laggard recovery from the Greatest Recession since the Great Depression.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Housing, housing market, Weekly Financial News and tagged , , , , , . Bookmark the permalink.

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