National Association of Home Builders chief economist Rob Dietz doesn't tend to bury the lead in his analyses, and his take on this past week's report from the Census Bureau and Department of Housing and Urban Development on housing starts and permits correctly characterizes the bottom line: Flat, month to month; up, year on year; and heading further up, based on home builder sentiment.
But, this time it's true that Dietz's most interesting, and perhaps most telling observation about momentum in the market does come in the brief post-up's final paragraph. Dietz writes:
There were 435,000 single-family homes under construction in May, which is 17% higher than May 2015. This is the highest count since October 2008 and is an indicator that growth in home construction is a key bright spot in the overall economy, given the lackluster GDP measure for the first quarter.
Now, bright spots in the economy are pretty important right now, especially as a growing number of economists are clocking in to the possibility of an economic downturn. The Wall Street Journal's Ben Leubsdorf writes:
Hiring is slowing, auto sales are slipping and business investment is dropping. America’s factories remain weak and corporate profits are under pressure. All are classic signs of an economic downturn, and forecasters have certainly noticed. In a Wall Street Journal survey this month, economists pegged the probability of a recession starting within the next year at 21%, up from just 10% a year earlier. Some economists think the risk is even higher.
The count for single-family homes under construction becomes ever more important in light of data that shows that jobs, household growth and slow gains in household incomes, are becoming a "virtuous cycle" factor of ever more calculable demand, ... a part of the recovery that's taking on a life of its own.
And it's needed. A Redfin analysis here shows a widening gap between the supply of new homes--both single-family and multi-family--and the demand that keeps swelling among younger, older, and less well-heeled households. Redfin contributors Laurie Goodman and Rolf Pendall of the Urban Institute and the Metropolitan Housing and Communities Policy Center, respectively, write:
As builders start work on more new houses, won’t supply begin to catch up to demand? Yes, at some point, but the supply-demand gap is expected to continue to grow for several years, even if household formation is flat. Chances are it won’t be. Millennials are still forming households and baby boomers are living longer and more independently than ever.
So, the importance of single-family homes under construction as a momentum indicator is hard to overstate. It's a single value that contains information both about jobs formation, shelter creation, and household spending data--both current and future. Here, Calculated Risk blog poster Bill McBride expresses his view that single-family starts and completions are on a long, slow climb that may extend "several years." And here, Trulia chief economist Ralph McLaughlin affirms strength in single-family trends from another way of keeping track of the market--a rolling 12-month tally.
While many closely watched economic benchmarks show signs of weakening, this one has been, could be, and, likely, will be an engine that can keep consumer household spending churning, which can ward off the likelihood of a Recession.