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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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.
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.
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.