Residential Construction

August 2018

Despite what some indicators may show, the housing market is still red-hot.  Single-family starts are still up over last year, with the overall weakening coming from the multi-family segment.  We are holding steady with our forecasts for the remainder of 2018.

Interested in learning more about what we are seeing and our forecasts, then click here to talk to us today.

Implication

Looking at permits on a non-seasonally adjusted basis and mapping to non-seasonally adjusted starts and you find a different story.  Permits are showing that Q3 2018 should continue to see strong starts.

We like to look at permits on a non-seasonally adjusted basis to avoid the errors of the X-13 SEATS model.  For single-family permits, we are projecting they will regain momentum for the remainder of 2018 and stay well ahead of their 2017 levels.

Implication

Q3 started off weak with a weaker-than-expected July starts figure, driven down primarily by a much weaker multi-family segment.

Housing is still going strong and will continue that way for rest of 2018.  There is still great potential for growth in housing, but the external influences, tariffs, FED moves, and regulatory restrictions are making us reconsider our 2019 outlook.

Implication

Single Family Starts driving all the growth

July Single-Family starts, on a seasonally adjusted annual rate basis, were up 2.7%.  A slightly lower growth rate than previous months, but still not reason for doom and gloom outlooks.

Implication

Multi-Family repeats last year’s pattern

July Multi-Family starts were virtually unchanged from June but were -11.8% off July year ago.  This same pattern occurred last year, and we expect a steady rebound like last year’s.

Total Housing Completions

Implication

Our estimates based on our conversations with builders across several markets are showing the time from start to completion is lengthening in 2018, particularly mid-year.  Labor shortages are accelerating an already increasing trend of more time from start to completion.

Implication

Back up over 4.5% after a prolonged period of averaging around 4.0%.  Increased rates combined with higher new and existing home prices are making an impact on affordability.

Implication

After hovering at 3% for the past several years, in the past year ARM’s have gone up nearly 100 basis points and are forecasted to continue to rise into 2019.

ExistingHomePrices

Implication

Price go up – Demand go down.  Lower inventory on the market is driving prices up and keeping homeowners from listing. They are telling us they don’t want to move because of expensive homes, lack of affordable lots in areas they want to live and general demographic changes.

Implication

See lumber prices, aluminum prices, copper prices and our discussions about labor shortages and the picture on newly constructed home prices is clear.  Price go up – Demand go down.  It’s a simple economic fact.  Add increasing mortgage on top of higher prices and new home sales should be down.

Implication

Despite rising prices and other issues related to housing, consumer and builder sentiment are at some of their highest points since 2000.  Builders continue to tell us this past year is the best they have ever had, even better than the mid-2000’s and in some areas, they are saying it’s at an unsustainable pace of growth.

Global Aluminum Prices

Implication

Prices for lumber, iron, steel and aluminum were increasing even before tariff threats were looming. Lumber prices, in particular, have soared to the highest levels in the 2000’s.  Price increases are being channeled through all those segments of the housing industry that rely on these commodities, like structural framing, windows, doors, cabinets, flooring, plumbing, appliances etc., etc.

As tariffs appeared, those price increases accelerated.  Tariffs have a way of doing that.

2018-09-18T17:03:57+00:00