Housing Starts Up - Patient Still Critical
The media is buzzing today over the data on new housing starts that is showing "signs of life". I urge you to take caution with such exuberance and put the data bump into perspective. Here is the release from the Census Bureau:
"Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 681,000. This is 5.7 percent (±1.6%) above the revised October rate of 644,000 and is 20.7 percent (±1.8%) above the November 2010 estimate of 564,000. Single-family authorizations in November were at a rate of 435,000; this is 1.6 percent (±1.6%) above the revised October figure of 428,000. Authorizations of units in buildings with five units or more were at a rate of 224,000 in November.
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 685 000. This is 9 3 percent (±13 1%)* above the revised October estimate of 627,000 and is 24.3 percent (±20.1%) above the November 2010 rate of 551,000. Single-family housing starts in November were at a rate of 447,000; this is 2.3 percent (±8.0%)* above the revised October figure of 437,000. The November rate for units in buildings with five units or more was 230,000"
First, let me just say that the numbers here are really so bad that it is the equivalent of a doctor that just revived a patient on the table in the middle of trauma surgery. The patient is alive and that is good news. However, the outcome is far from conclusive or postive at that point in time. Therefore, before we start declaring a bottom in the housing market and using today's release as definitive proof the economy is recovering - let's put some things into perspective shall we?
It isn't surprising that we are seeing a bump in housing starts and permits given the fact that mortgage rates are at historic lows and there has been some recent improvement in the jobs data. Confidence in employment, combined with the constant barrage by the media about low mortgage rates, is moving some buyers off of the fence and into the market. This is the good news.
The reality is that even with the recent bump in new home starts there is a negative undertone. Even with today's release we are still fishing bottoms in the indexes and at levels far lower than normal recessionary bottoms. Furthermore, there is a large increase (13.9% percent jump) in multi-family apartment permits (following a 22.7% spike in October) which is more indicative of the demand from people coming out of single family units and needing a place to rent. This is as opposed to only a small 1.6% bump in permits for single-family units which is far more telling about the "health" of the average American. Any economic shocks from Europe, a rise in payroll taxes or a decline in consumer spending could very well put this patient back on life support.
While starts and permits of new units are encouraging, there is a heartbeat, the real question is whether or not they are getting completed and people are moving into them. That bit of data is much more disappointing. From today's release:
"Privately-owned housing completions in November were at a seasonally adjusted annual rate of 542,000. This is 5.6 percent (±11.5%)* below the revised October estimate of 574,000 and is 1.6 percent (±15.8%)* below the November 2010 rate of 551,000. Single-family housing completions in November were at a rate of 440,000; this is 0.7 percent (±8.9%)* below the revised October rate of 443,000. The November rate for units in buildings with five units or more was 99,000"
That is a 3 month consecutive decline in the number of completions. This is disturbing as these are starts and permits that were not ultimately completed due to a variety of reasons. The concern is that when this indicator turns down, as it has recently, the number of starts and permits also follow the decline. Therefore, with real concerns about economic strength and some statistical anomalies in the recent employment data we are cautious about the near term condition of the patient and the longer term outlook for recovery.