Residential Construction

September 2018

How to ruin a good thing!  Look to raise interest rates and impose tariffs on important inputs to the housing sector.  While there is a slowing down, the overall market is still strong compared to recent years but our forecasts for next years are being dampened as these influences water down the red-hot housing market.

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

Housing Permits Chart

Implication

New housing permits are up 3.7% year-to-date total new housing permits, but recent months may be indicating a slightly weaker rest of 2018 for starts.  Our outlook is these results are too early to say, but the headwinds are gathering strength and are most likely to drive down starts growth in 2019 and beyond

Housing Starts Chart

Implication

Starts bounced back up in August with growth +9.4% from year ago August, and 9.2% from July 2018. Multi-family construction experienced an off-trend surge in August and drove the overall growth rates. Single family has weakened over the past two months and are below 2018 trends.  While two months in a row do not make a trend, they do show the negative effects of interest rates, inflationary pressures and tariffs are showing up and portend a weaker outlook.

Single Family Starts Chart

Implication

August Single-Family starts, on a seasonally adjusted annual rate basis, were up 2.9% from a weaker July, and essentially flat at -0.2% from August year ago.  Both July and August starts are off the trend from earlier in the year.

MultiFamily Starts Chart

Implication

August Multi-Family starts surged +38.1% from year ago, erasing a very weak July.  Our outlook is this is a timing effect and multi-family starts will continue to weaken through the rest of the year.

Housing Completes ChartSingle Family Housing Completes ChartMultiFamily Completes Chart

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.

Mortgage Chart

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.

5/1 ARM Chart

Implication

ARM’s approaching 4.0% and are forecasted to continue to rise into 2019.

Existing Home Sales ChartExisting Home Sales Prices Chart

Implication

Price goes up – Demand goes down.  Those areas with greatest price inflation are experiencing the biggest declines in existing home sales.  West region has seen biggest price increases (+4.8% in August) and existing sales are down -7.4%.  Lack of existing homes for sale, combined with too expensive new homes to move to, are keeping sales in the negative range, with no expectation of turning around.

Newly constructed Home SalesNewly Constructed Home Prices

Implication

The song remains the same.  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 rates on top of higher prices and new home sales should be down, and they obliged.

Builder Sentiment

Implication

Builder sentiment is starting to wane as they continue to face labor issues, increasing input prices and a FED forced to increase rates.

Global Alum PricesIron and Steel Prices ChartLumber Composite Prices Chart

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.

2018-09-28T18:03:23+00:00