Today’s data for July housing starts and permits was very mixed. Of course, the month on month data is volatile (and subject to very large revisions) due to difficult seasonal adjustment factors and changes in the weather, but the Year on Year (YoY) trend is more reliable. For housing starts, July’s result was far below consensus, but it was the second positive YoY reading in a row (despite June’s result being the revised down) after a record post-2009-long string of very poor results. Its 3-month moving average even managed to stay flat YoY for the second month in a row:
It is clear that there is a trend away from single family home ownership due to the high cost of housing, burdensome student loans and a structural decline of interest in owning a suburban home by many of the current young generation of urbanites. Rising mortgage rates last year also hurt demand, but their recent decline does not seem to have helped much yet. Also, in the spring, the FHA and GNMA, the government agencies that guarantee and package low to middle-level loans, significantly tightened their credit standards, but just this week, the FHA loosened rules for condo purchases, which it says will increase loans for entry level condos (for first time buyers) by 60,000 units. Hopefully this, coupled with lower mortgage rates and moderately higher wages, will help demand, as there is no question that it has weakened greatly after a long period of recovery from the 2007-2010 housing crash. Starts have not even recovered half of their losses from the 2002-2007 average.
On a more hopeful note, permits to start a new housing project (starts include both new homes/condos and major additions to existing ones) turned positive YoY after negative YoY readings for most of the past year:
Within this, July permits were -4% YoY for single family units, the 10th negative month YoY in a row, with the last previous negative reading being way back in 2011. As for multi-family permits (note that single family permits are normally about twice the size of multifamily permits), the data is extremely volatile even on a YoY basis, with July at +12% YoY after a very poor June, while its 6-month sum YoY reading was +1% YoY. Although the continued high level of the NAHB index provides some hope, the fact that it has remained so high during the last nine months of weakness in starts and permits casts significant doubt on the accuracy of this index.
In sum, housing investment subtracted significantly from 1H 2019 GDP growth, but the permit data provides good reason to expect that for the next few quarters, it may be much less of a drag on growth. Another main question is if housing prices truly peak out, as has been hinted in recent months, as U.S. housing represents the largest asset class in the country, if not in the world, and poor prices would likely weigh on consumer spending. Notably, many other countries are seeing housing prices peak out, although from inflated levels, which is potentially healthy for re-balancing, but also a dangerous development for their economies and financial systems in the intermediate term.