Recently we’ve had a visible slowdown in housing starts in the US, which has largely been attributed to the weather (see chart).
Logan Mohtashami, Benzinga Contributor Podcast of Interview with Bloomberg Financial http://media.bloomberg.com/bb/avfile/Economics/On_Economy/v9PUOKbnFMeE.mp3 2014 Housing Predictions http://loganmohtashami.com/2013/12/30/2014-housing-predictions/ Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a … Continue reading →
Many economists have been expecting the housing boom to provide a visible lift to the US economy. So far the results have been underwhelming. In spite of strong homebuilder optimism (see post), housing starts remain subdued. The momentum we saw in late…
Economists and the markets have been cheering the jump in housing prices and improving construction statistics. But for many Americans rising demand and higher house prices bring more bad news. Based on the latest data (report below) from the Joint Center for Housing Studies, Harvard University (JCHS), here are some sad facts about the housing situation in the US.
1. The number of homes for sale is still near record lows. That is driving up costs and quickly pricing many households out of the market.
2. The US actually has a large number of vacant homes that are not making it into the market. Vacant homes are often in areas with few job opportunities, making it impossible to renovate, sell, or rent. Many are in places like Detroit and simply will never be sold.
3. We are seeing the confluence of tight housing conditions and weak household incomes. As JCHS points out “most types of households have seen their real incomes decline over the past decade”. This is particularly true for growing households.
4. As a result, “the total number of households paying more than half their incomes for housing soared by 6.7 million from 2001 to 2011, a jump of 49 percent”. Note that this is a problem for both homeowners and renters.
5. Housing shortages (discussed here) and rapid renter household growth are driving up rents. At the same time, millions of federal rental subsidies for low income renters are set to expire in the next decade.
6. On top of all this is the fact that households are now forming at a rate of about a million per year. The market is demanding a million new residential units each year. Unless construction can keep up and prices decline or incomes rise (neither seems likely right now), this trend will drive up the number of households with “housing cost burdens” (already over 40 million – #4 above) – for both homeowners and renters.
From our sponsor:
Lumber futures turned out to be a good predictor of US housing starts. The large decline earlier this year (see post) translated into weaker than expected residential construction in June (see post). That means we should certainly pay close attention t…
Given yesterday’s poor housing starts report, some economists are raising concerns about the sustainability of the positive momentum in residential construction.
The primary explanation for the latest decline seems to be the slowdown in apartment construction.
NAHB: – “While demand for new homes and apartments has grown considerably over the past year, builders are still being very careful not to get ahead of the market, and today’s report reflects that cautious approach,” said Rick Judson, Chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C.
“The large dip in multifamily production in June follows a boost of activity in May, and is consistent with the volatility that has come to characterize that sector as well as the uneven pace of the housing recovery,” noted NAHB Chief Economist David Crowe. “That said, the fact that single-family starts and permits both rose in three out of four regions in June is a positive sign that’s in keeping with our forecast as well as recent surveys in which single-family builders have registered an increasingly positive outlook.” The annualized rate of multifamily production declined 26.2 percent to 245,000 units in June after a 28.2 percent gain in the previous month.
Some have also attributed the slowdown to weather conditions.
There is another issue however that nobody wants to discuss. Anecdotal evidence suggests that the sudden rise in interest rates has spooked some developers who decided to cool things down a bit – at least until there is more certainty around rates and economic growth (we’ve seen glimpses of this earlier).
There is no question that construction will resume on its upward path, if for no other reason than demographics. The US population is growing at the rate of roughly 2.3 million per year and construction rates are just not keeping up.
But even a temporary slowdown in construction (particularly if caused by policy uncertainty) is bad news for the US economic growth, which remains fragile.
WSJ: – The weaker-than-expected housing activity could weigh even further on second-quarter growth estimates, which have already dropped below 1%.
BNP Paribas economists on Wednesday said the drop in June housing starts could shave 0.1 percentage point off their forecast of 0.8% annualized growth of gross domestic product in the second quarter.
From our sponsor:
According to Nick Timiraos from the WSJ, the latest drop in the seasonally adjusted housing starts measure is nothing to worry about.
This is a syndicated repost courtesy of Sober Look. To view original, click here. One of the casualties of the sub-prime crisis in the US has been the manufactured housing sector. Mortgages against manufactured homes have generally been significantly more expensive than those on traditional homes. That allowed some of these loans to be pooled…
This is a syndicated repost courtesy of Sober Look. To view original, click here. The concept of US housing shortage (discussed here) is difficult to fathom, but people who are on the transaction side of the housing business are beginning to take notice. Bloomberg: – Wells Fargo Chief Executive Officer John Stumpf said there aren’t…
Homes available for sale as well as the housing supplies measured in months are now at pre-recession levels, while household formation continues to recover (see post). This development was predicted by William Wheaton back in 2009. Source: JPMorganF…