Wednesday, July 17, 2013

Weak housing starts don't signal the end of the housing recovery

June housing starts were significantly below expectations (836K vs. 960K). Brian Wesbury argues that it was most likely due to weather: "18 states in the South and East had rain totals in June that ranked among their 10 wettest on record." He adds that "The vast majority of the decline (95%) was due to the very volatile multi-family sector." As the chart above shows, this series is notoriously volatile. With home builders' confidence up significantly, and with building permits in June (see chart below) running above starts (911K vs. 836K), it is reasonable to think that the recent decline in starts will reverse. In any event, it remains that case that starts are up over 10% in the past 12 months, and have they have surged 56% in the past three years.

It's possible that the recent rise in mortgage rates, which began in May, could be responsible for some of the decline in June starts. But it would be premature to conclude that the housing market recovery has come to an end—this is more likely just a pause.

New mortgage applications for home purchases have only declined marginally since mortgage rates started rising, suggesting that underlying demand for housing remains relatively strong.


Benjamin said...

Last two housing posts good. Still, I fear many commentators are beginning to settle for a "new normal" of subpar output.

Jeez, could we have a a robust economy and Fat City again?

William McKibbin said...

The Fed's MBS purchases will persist until housing recovers -- clearly, the Fed is determined to see results in housing jobs specifically -- I would not bet against the Fed in this instance -- real estate is a solid investment given the support of Fed MBS purchases, which will continue (according to the Fed) until demonstrable and sustained improvements in employment are evident -- folks, these signals are as good as it gets for the future of real estate -- said another way, the Fed will not be satisfied until its MBS purchases yield real improvements in employment and growth in the real estate industry.

William McKibbin said...

PS: Bernanke is now on the record as saying he will not be satisfied that employment is recovered with a simple change in the unemployment rate alone -- cyclical changes in employment were cited as false signals of improvement -- the Fed is apparently committed to continuing MBS purchases indefinitely, or until a demonstrable (i.e., spectacular) recovery occurs in housing and employment -- that's clear enough for me -- couple these messages with the continuing low interest rates, and it's easy to see why I am bullish on real estate big time... said...

Yeah, it was the weather. 2 days ago KO blamed the weather for poor performance, too.