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April 16, 2020 | Housing Starts Plunge 22% and It Will Get Worse

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Housing starts took a huge dive in March. April rates to be much worse.
Economists at Econoday expected housing starts would fall to 1.35 million on a seasonally-adjusted annualized rate (SAAR). That’s a decline of 15.6% from the February report of 1.599 million SAAR.Instead, starts fell to 1.216 million SAAR, a decline of 22.3% according to the March New Residential Construction Report.

Building Permits

Privately‐owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,353,000. This is 6.8 percent below the revised February rate of 1,452,000, but is 5.0 percent above the March 2019 rate of 1,288,000. Single‐family authorizations in March were at a rate of 884,000; this is 12.0 percent below the revised February figure of 1,005,000. Authorizations of units in buildings with five units or more were at a rate of 423,000 in March.

Housing Starts

Privately‐owned housing starts in March were at a seasonally adjusted annual rate of 1,216,000. This is 22.3 percent below the revised February estimate of 1,564,000, but is 1.4 percent above the March 2019 rate of 1,199,000. Single‐family housing starts in March were at a rate of 856,000; this is 17.5 percent below the revised February figure of 1,037,000. The March rate for units in buildings with five units or more was 347,000.

Housing Completions

Privately‐owned housing completions in March were at a seasonally adjusted annual rate of 1,227,000. This is 6.1 percent below the revised February estimate of 1,307,000 and is 9.0 percent below the March 2019 rate of 1,348,000. Single‐family housing completions in March were at a rate of 863,000; this is 15.0 percent below the revised February rate of 1,015,000. The March rate for units in buildings with five units or more was 357,000.

Housing Starts 1959-Present

Last month housing starts hit a 12-year high. But the above chart puts that into perspective. Moreover, many of those starts reflect unseasonably favorable weather.

Regardless, the huge two-month surge took starts back to a level hit in 1959. Today’s level is a level normally associated with recessions. And we are undoubtedly in one.

Surprisingly Good?

Mortgage News Daily says Chart of New Home Construction Looks Surprisingly Good Despite Biggest Hit in 40 Years

While the March residential construction report from the U.S Census Bureau is grim, one can find a small glimmer of optimism in the fact that, while housing starts fell off a cliff, there was much less damage done to permits. Perhaps this means builders are envisioning a pause in construction rather than a total collapse.

Robert Dietz, an economist with the National Association of Home Builders (NAHB) points out that, despite the mitigation efforts to control spread of the COVID-19 virus, construction can continue in a majority of states, “as home building is deemed an essential business activity. We estimate that approximately 90% of single-family units under construction are located in ‘essential’ states and 80% of apartment units are located in such states.”

Complete Nonsense

The above rationale is nonsense. While it’s true that builders need a permit to start a house. It’s also true that permits reflect builder optimism in March that has since vanished.

The consensus for much of March was that the coronavirus was much ado about nothing, That is not the case now.

The NAHB Housing Market Index for April plunged from 60 to 30, a record drop.

The Econoday consensus range was 53-68, down from 72.

The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes.

Starts will take another dive in the upcoming months as buyers put plans on hold. And permits will catch up if not lead the way.

Mike “Mish” Shedlock

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April 16th, 2020

Posted In: Mish Talk

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