Tuesday, October 1, 2013

When Will The Big Dog Take The Lead?

The housing market had been over-stimulated since 1995 and was on fire until the bubble burst in 2007-2008.  Housing was one of the last sectors to crash in the Great Recession, but when it crashed, it crashed hard.   Housing usually leads the recovery out of recessions, but many economists are becoming concerned because growth in the sector appears to be slowing.  So let’s check the numbers:

Housing Starts

August Report: 891,000 (annual rate). +0.9% vs. July, +19.0% vs. August 2012

Trend: The growth rate this year is slower than 2012.  Housing starts flattened out mid-year but now appear to be gaining some momentum.   Single family units are getting stronger, but multi-family units are decreasing.  My economic panel (Wall Street Journal data) forecasted 2013 housing starts at 980,000, so growth has been weaker than expected.

Building Permits

August Report: 918,000 (annual rate) -3.8% vs. July, +11.0% vs. August 2012

Trend: This indicates the new home market is still steady, but not strong.  The build rate may not increase much until 2014.

Home Builder Confidence

September Report: 58 (50 = Neutral) No change vs. 58 in August

Trend:  The index held steady after four consecutive monthly increases.  Builders are cautiously optimistic, but this optimism may be waning.

New Home Sales

August Report: 421,000 (annual rate) +7.9 vs. July, +12.6% vs. August 2012

Trend: Slow, steady, growth, but more measured than 2012.  New homes are not selling fast enough to stimulate the build rate.

New Home Inventory

August Report:  Steady, moderate, growth since mid-2012.  Inventory is still at very low levels.  Inventories will need significant growth to support “normal” sales rates whenever that occurs.

Existing Home Sales

September Report: 5.48 million (annual rate) +1.7% vs. August, +13.2% vs. September 2012

This is the highest volume since early in 2007 indicating strong growth in this sector. Prices are increasing, motivating both buyers and sellers.  Inventory of existing homes is shrinking and this could hamper future sales growth.

Housing Prices

July Case-Shiller Report: +1.8% vs. June.  Up 12.4% over past 12 months.

Trend: Prices have been steadily increasing since January 2012. They are still down 23% from peak.  The forecast is for another 12.4% increase in the next 12 months.

Commercial Construction

Trend: Commercial construction has been weaker in 2013 after displaying solid growth in 2012.  Construction of new retail, office, and hotel buildings should be much higher in the fifth year of an economic recovery.  If you looked at this number alone, you would conclude the economy is still in recession.

What It Is

Housing market growth slowed in the middle of the year after displaying strong growth in 2012.  It appears the sector is performing very similar to many of the industries that took big hits in the Great Recession. There was a strong rebound off the bottom of the curve, but at some point growth levels out and there is slow progress for an extended time.  Because housing was the last sector to crash, it is mirroring the general economy but still lagging it. 

What It Means

Housing is not going to lead us out of this lethargic recovery anytime soon.  However I don’t expect housing growth to stay this weak for much longer. New home sales are strong, selling prices are increasing and new home inventories are low.  There is still slack in the system (foreclosures, etc.). At some point the slack will be gone and demand will increase and stronger growth will return.  2014 should be a much better year for housing.

What Now?  

That the housing market is still lagging, instead of leading, the general economy is evidence that things are still messed up.  Our economy is a jumbled, malfunctioning, mess. Hopefully at some point the economy resets itself and a real recovery can begin.  Unfortunately my panel of economic
We need the Big Dog running!
experts from the Wall Street Journal is predicting less that average growth for the next four quarters: Q3 = 1.9%, Q4 = 2.5%, Q1 (2014) = 2.7%, Q2 = 2.6%.  We desperately need the “Big Dog” of housing to get up and lead the way, because that is when our economy runs the best.

1 comment:

  1. What about interest rates going up? won't that hold back growth rates? Also sentiment for taking on debt is lower than pre-crash.