Residential Construction

November 2018

Rising prices for new and existing homes, low inventories of homes for sale, interest rates climbing to heights not seen since before the recession, have dampened the growth trajectory for housing.  Housing is still strong compared to a year ago but is starting to weaken and those same year-over-year growth rates will be hard to maintain in 2019.  An average rate of 1.2 million starts represents a strong housing market in this new, post-crisis world.

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Implication

New housing permits are up +3.9% year-to-date. October 2018 permits were down -6.0% from October 2017 leading to us to dampen our starts forecast for 2019.

Implication

After averaging over 1.3 million annual starts through May, the past months have seen starts drop back to a 1.2 million pace and we see them slipping below the 1.2 million level into 2019.  Preliminary estimates of October starts came in -2.9% lower than Oct 2017 but are still up +5.6% year-to-date. Our forecasts are for starts to maintain growth in the 4% range.

Implication

Preliminary October starts fell -1.8% compared to September and -2.6% compared to October 2017. On a year-to-date basis, single-family starts are up +5.5% over same period last year.

Implication

October year-to-date multi-family starts are up 6.0%.  Solid growth in the past months has helped keep overall starts growth above 5% for the year.

Implication

October completions were down -6.5% from October 2017.  Year-to-date completions are now at 5.1% overall, with single-family completions growing 8.5% year-to-date.

Implication

The 30-year fixed rate continues to stay just under 5.0% but will likely rise higher into the new year. Housing affordability will decline as rates continue to climb.

Implication

ARM’s stayed above 4.0% through October and are holding as of mid-November. Rates will continue to rise into 2019.

Implication

Existing home sales increased for the first time since March, up 1.4% from September but still down from October 2017. This downward trend will continue with increasing interest rates and higher prices for existing homes.

Implication

October sales have dropped considerably from September and are down from last year. Price is now following as demand for new construction has dropped – thanks rising material costs, labor shortages, and increasing mortgage rates.

Implication

Builder sentiment is weakening as they continue to face several headwinds, particularly increasing input prices and a FED forced to increase rates. Preliminary projections for November show a dramatic drop in builder sentiment as these forces are raising pessimism that the strong growth will continue into 2019.  Despite the weakening sentiment, the index is still well above where it has been prior to 2016.

Implication

Price increases for commodities important to homebuilding and durables manufacturing have softened in the past couple of months.  However, the inflation picture is not good.   Some Producer Price Indexes are up double the rate of consumer inflation in 2018 with the impacts of tariffs not yet fully realized.

2018-11-30T22:09:09+00:00