In my last post, I stated how the green shoots that FED
Chairman Ben Bernanke first trumpeted in March of 2009 were finally appearing
in new hotel construction. However, while we were enjoying the summer, while we
were lounging at the beach, while no one was paying attention, something wonderful
has happened. Housing began its long awaited recovery.
I know you think I’m joking or maybe just making it
up. You’ve heard rumors and hopes of a
housing recovery for the past four years.
So much so that you tuned out news on the subject, you’ve accepted the
fools who proclaim this is the “new normal.”
But now there are green shoots in the housing market,
Early in 2014 I told you not to believe the forecasts of
an impending housing recovery, and I was correct. And now I’m saying it is
here. Let’s check the numbers to see why.
Housing
Starts:
July Report: 1.2M (annual rate). +0.2% vs. June, +10.1%
y/y
Trend: We are finally moving up at a consistent, solid
rate. A healthy market now would be
around 1.6 million starts. We are not
quite there, but at least we can see the target and it is in reach. The forecasts for 2016 are still reserved; however,
Wells Fargo is in at 1.25M and the Wall Street Journal economic panel is at
1.3M. If the rest of the economy cooperates, 1.3M or more is very plausible.
Building
Permits
July Report 1.1M (annual rate). -16.3% vs. June +7.5% y/y
Trend: The July numbers were lower than expectations
after a terrific June. However, the
trend is definitely positive and bodes well for increased builds in 2016.
Home
Builder Confidence
August = 61, July = 60, August 2014 = 55
Trend: The August value is the highest since November
2005, and that says a lot. A reading of 50 is neutral, so builders are
anticipating very good times ahead.
New
Home Sales
July Report: 507K (annual rate). +5.4% vs. June, +25.8
y/y
Trend: Very strong year-over-year and monthly
growth. Finally there is some momentum
and reason to feel optimistic. However,
a healthy market is 700K and that still looks to be more than a year away.
Existing
Home Sales:
July Report: 5.6M, +2.0% from June, +10.0 y/y
Again, there is finally some positive news after years of
inconsistent, sluggish numbers. The
market is still far from healthy, far from normal, but it is moving consistently
in the right direction.
Home
Inventories
This is the one metric that is not positive. Existing home inventories were actually down
slightly in July and down 5% y/y. This
is confusing to economists, which means there is more than one factor causing
this, and there are shifts in market forces which are never clear when they are
still changing. If this doesn’t improve
soon, it will continue to constrain the market.
Housing
Prices
Core Logic reports prices are up 6.5% m/m and 11.7% y/y
in June. Of course this is a function of both increased demand and restricted
supply (low inventory). Even so, prices are still 7.4% below the April 2006
peak.
Anecdotal
Reports
A roofing contractor told me he is advising people to schedule
him now because there will soon be a shortage of shingles due to a significant
increase in new home construction. It
seems the manufactures were lulled into a false sense of security after years
of sluggish sales and are now rushing to catch up with the rapidly growing
demand. This sounds like exactly what
happened in the Class 8 truck and trailer markets as demand suddenly spiked in
2014 and a few years of stable sales.
My realtor friend, Nancy, also reports that instead of
sunning herself at the beach during the traditional summer slowdown, she was
very busy selling houses. Her suntan
will suffer, but her bank account is looking good.
The
Outlook
There are still hurdles for the housing market to clear
before it starts to hum. Wages are not
growing, so people are not moving up to bigger homes. Millennials are not finding suitable jobs and
forming households as before, both factors in low-end home sales. Also, builders have not built enough smaller,
starter, homes instead of the McMansions, which people either don’t desire or
can’t afford.
The housing market remains out of sync with the rest of
the economy. This means an economic
recession could stop the housing recovery.
We don’t have much history on housing lagging the general economy, so
this scenario is difficult to predict.
People are still risk adverse due to the Great
Recession. They are reluctant to take on
a mortgage and are willing to pay higher rental costs to reduce their
risk. We, again, saw how the risk factor
limited truck and trailer sales until 2014.
However, we know what happened when the commercial
vehicle market finally got over the hump and started to move. There was a tremendous amount of pent-up
demand, and, once that was released, the results were surprising. If this trend
repeats in the housing market, 2016 will be a good year, and 2017 could be
something special. Keep an eye on those
green shoots!
This post first appeared on the FTR website. FTR is the leader in analyzing and forecasting the commercial transportation industry. For more information on FTR reports and services, please click here.)
