The housing recovery was a bit sluggish in August, although perhaps today’s monthly update is more noise than signal. Nonetheless, the latest residential construction figures from the Census Bureau are a mixed bag: newly issued building permits for housing retreated modestly (-1.0%) in August vs. July while new housing starts in August rose 2.3% over the previous month. It’s not a terribly encouraging batch of numbers, but it doesn’t look especially troubling either. But if we strip away the short-term changes and focus on the annual trend, the numbers still suggest growth will prevail in the months ahead.
For some perspective, let’s start by looking at the monthly stats in recent history:
The trend looks somewhat better with the year-over-year percentage changes:
The housing recovery, which started to resonate back in December, still appears to have some legs, or so the annual pace implies. With starts and permits continuing to increase in excess of 20% vs. year-earlier levels, it’s hardly convincing to argue that the August numbers alone are a sign of trouble. If future updates show permits and starts flat-lining or worse, month after month, well, that’s a different story.
Meantime, it’s no trivial factor that mortgage rates are at or near all-time lows. The combination of lower prices for houses and a high degree of financing affordability are “actually quite favorable right now,” Jim O’Sullivan, chief U.S. economist for High Frequency Economics, tells Bloomberg. “There’s a lot of room for housing to go up over the next few years.”
For the moment, that’s still a reasonable forecast. The population keeps growing and quite a lot of the excess has been purged in the home-building industry. As a result, the revival of late is partly fueled by simple supply and demand factors. Even so, it wouldn’t be surprising to see the rate of growth in starts and permits slow in the months to come. Expecting something more ominous can’t be ruled out entirely, but a darker outlook doesn’t have much quantitative support at this point.
Consider, for instance, yesterday’s upbeat news on builder confidence:
Builder confidence in the market for newly built, single-family homes rose for a fifth consecutive month in September to a level of 40 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This latest three-point gain brings the index to its highest reading since June of 2006.
“This fifth consecutive month of improvement in builder confidence provides further assurance that the housing market is moving in a positive direction, but there’s still a long way to go on the road to recovery and several obstacles are slowing our progress,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “In particular, unnecessarily tight credit conditions are preventing many builders from putting crews back to work – which would create needed jobs — and discouraging consumers from pursuing a new-home purchase.”
The more impressive gains in the housing market’s recovery may be behind us, but the recovery, perhaps downshifting a bit, is still with us. Overall, that’s a positive for the economy, considering the housing market’s influence. At the very least, housing (until further notice) is no longer a drag on macro conditions. That’s hardly the last word on looking ahead for the broader economy, but it’s one more plus in the positive column of variables.