Housing ‘Zenith’

Housing ‘Zenith’

Housing starts came in at the low-end of the range for April, perhaps suggesting that what some have been keen to describe as a “bubble” is poised to float at a lower altitude going forward.

The 1.569 million annual rate for last month missed the 1.704 consensus and very nearly matched the most pessimistic estimate from five-dozen economists. The range was 1523k to 1850k. Some suggested soaring lumber prices are prompting buyers to hold off on construction.

April’s 9.5% drop came on the heels of a 19.8% gain in March (figure below).

The YoY print (+67%) is meaningless. Any comps with March and April of 2020 in the US have virtually no informational value, for obvious reasons.

Permits missed slightly too. Some Fed officials have voiced concern around housing, and a veritable cacophony of Fed critics take every opportunity to blame policymakers for fostering a new bubble.

The Fed played a role, but let’s be clear: Pandemic dynamics, including a flight to the suburbs and the proliferation of work-from-home arrangements created insatiable demand, which only grew as it became apparent that remote work might be here to stay for some occupations. The Fed’s crisis response was fuel on the fire, as mortgage rates hit record low after record low. This is a familiar narrative.

Mortgage rates have fallen in four of the last five weeks after rising swiftly in Q1, during the bond selloff (figure above).

Meanwhile, Home Depot logged another blockbuster quarter. Same-store sales rose 31%, a massive beat for comps. Consensus was looking for “just” a 20% gain. In the US, comps were up 29.9%.

Net sales beat the high-end of the range.

“2021 is off to a strong start as we continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects,” CEO Craig Menear gushed. “I’m proud of the resilience and strength our associates have continued to demonstrate, and I would like to thank them and our supplier partners for their hard work and dedication to our customers.”

“Given the heady performance of last quarter it would have been tempting to say that Home Depot had reached its peak,” GlobalData’s Neil Saunders said. Q1 results suggest the company is “still climbing and has reached new heights.”

Still, Saunders reckoned last quarter was the “zenith” for Home Depot. One wonders if the same is true for the US housing market.


6 thoughts on “Housing ‘Zenith’

  1. May be one aspect of the economy that cleared the bottle neck. Head and shoulders are through. Summer is moving time for those with school age kids, so let us see October.

  2. In 2021, May 10 was the peak for lumber prices, which were $1,733 per 1,000 board feet. That was 4x higher than the 2020 price. The July, 2021 futures are currently trading at 23% off the peak, or $1,334 per 1,000 board feet.
    Many homebuilders dialed back, waiting/hoping for lumber prices to fall. My understanding is that it takes over 2 years to bring a new mill online- so who knows where this ends up.

    1. Anyone who can wait likely will. I wanted to build a deck and put up new vinyl siding but I’ve got more time than money so I’ll wait rather than pay sky high prices. Much like microchips I think this will take a year or two to actually unwind and normalize and that is of course if we are actually out of the covid woods.

  3. Six.

    I need six hammers.

    1 long handled sledge, 1 short handled sledge, 1 rubber mallet, 1 heavy claw hammer, 1 light claw hammer, 1 ball-peen hammer.

    I also need 3 nail guns, but that’s another story.

  4. Isn’t it likely that more existing homes will come on the market now that a substantial portion of the population is vaccinated? Putting your house on the market and having dozens of visitors tramp through your house is a little scary in the midst of a pandemic, not to mention inviting lots of contractors to fix minor items to get the house ready for sale. I suspect many people who want to sell their homes preferred to wait until they were vaccinated. Housing prices are just about supply and demand. Our population is not exploding. Overall demand is not increasing at an extraordinary level. One can argue that there is some longer term desire for the suburbs, but housing prices are rising in downtown locations as well. One can argue that families want additional square footage so that the home can also serve as an office. But those forces for increased demand of large suburban homes can easily be satisfied by an increase in supply of existing homes for sale, which I suspect we will see very soon.

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