Tuesday, June 16, 2015

Strong building permits trump soft housing starts

May housing starts were much weaker than expected (1036K vs. 1090K), but building permits were 16% above expectations, and homebuilders' sentiment was comfortably strong. Two positives easily outweigh the starts negative, expecially given the volatile nature of this series. 

On balance, the housing market is still in good shape and likely to continue improving. Building permits were very strong, as the chart above shows. Builders are closer to the reality of the housing market than most of us, and today's releases suggest they are expecting conditions to improve.

I have yet to see anything which points to a recession or a slowdown serious enough to warrant paying the high price of safety (i.e., cash still yields almost nothing, while yields on competing investments are much higher).


Lawyer in NJ said...

The "R Word" chorus seems to be hoping for a recession, for whatever reason, but the data, along with the apparent under-reporting of 1Q GDP due to seasonal adjustment issues, does not support it.

Nice charts. Thanks.

Benjamin Cole said...

The city of Newport Beach has all but criminalized robust construction of new housing, and that city is hardly alone up and down the West Coast. This is a much larger problem and contributor to inflation than anything the Fed has done in the last 35 years.

Hans said...

Robust construction of new housing? Ben Jamin, it is still currently under
50% of it's all time peak.

Hear is a more detailed look at this issue:


Lawyer in NJ said...

In my neighborhood in Northern NJ, the popular thing for builders to do is knock down $1m homes and put up $2m homes.

Barb Peterson said...

I own a kitchen and bath design shop that sells cabinetry. We have business relationships with many custom home builders. We have not had one new construction home this year. We are located 60 miles NW of Chicago. Our builders tell us that unless the homeowner has 40% to put into the project, the bank will not lend the money toward the project. We get prints to look at but are finding that the project gets put on hold or is canceled. Too expensive is the feedback. We love remodels and are busy with remodeling, but new construction has been a dead end for us!

Benjamin Cole said...

Hans--I AM saying that cities such as Newport Beach have all but criminalized new construction of housing.

Believe you me, somebody could put up a 40 story condo tower in Newport Beach and sell every unit.

Scott Grannis said...

Barb: thanks for your comments; it's always good to hear from people on the front lines of the economy.

In Southern California, building activity has definitely picked up in the past few years. It's still hard to get a loan, however, as my daughter recently found out when attempting to purchase an older home. She managed to prevail, however, and will be redoing the kitchen soon—too bad you aren't located here! Lots of redecorating, plus a decent amount of new construction in our area. California's economy continues to be more dynamic, despite very high taxes, than other parts of the country.

Hans said...

Well, Ben Jamin, if that is the case, it is either they are running out
of beach front or the city has gone no growth.

May I also add, what would be the numbers if you had normal (nominal)
interest rates?

First, we were given FedZero and then followed by Fedomonics..The governmental units
are operating the free market place..