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.
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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
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.
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.
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.
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.