Housing starts rose in May, but missed estimates on the heels of April’s lackluster showing.
Starts logged a 1.572 million annual rate (figure below), short of the 1.63 million consensus. The range, from five-dozen economists, was 1.5 million to 1.735 million.
April was revised lower, to 1.517 million, representing a 12.1% decline compared to the originally reported 9.3% drop.
The rate for single-family starts was 1.098 million and multifamily 474,000. Completions dropped.
Permits missed too. The market was looking for a 1.73 million pace there. The actual print was 1.681 million, a 3% drop from April.
This marks the fourth month in five (I think) that starts have underwhelmed.
Mortgage applications, however, rose the most in weeks, climbing more than 4% in the week to June 11. Demand isn’t really the issue in housing, or at least not yet. That comes later, when everyone who can afford a home already bought one, and everyone else is priced out of the market. At that point, demand will drop and so will prices. Lumber is down 40% from recent highs.
Authorizations for single-family homes not started were 142,000 last month (figure below).
That’s the most since October of 2006, on the eve of the housing collapse. In other words: Backlogs are bulging.
Mortgage rates have moved back below 3% after jumping quickly (albeit from record lows) in the first quarter, amid surging long rates in the US (figure below).
At this point, I doubt I need to recap the housing narrative. Fed officials have voiced concern, and a veritable cacophony of Fed critics take every opportunity to blame policymakers for fostering a new bubble.
The Fed played a role (figure below), but 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 and prices surged.
Finally, just in case you needed another hot inflation indicator to feed the narrative, import prices rose 1.1% MoM in May, more than expected. The YoY print (11.3%) was the biggest jump since September 2011.
“Demand isn’t really the issue in housing, or at least not yet. That comes later, when everyone who can afford a home already bought one, and everyone else is priced out of the market.”
To get into that better house buyers can afford people have to leave some other dwelling behind. As those units start to pile up and with effective demand falling (people are priced out) it is inevitable that those dwellings left behind will start to fall in price so others can afford to move up also. This is how the housing stock filters down until remaining units have no value and are eventually razed. That’s the theory, anyway. For sure for every new dwelling added to the standing stock and sold, an existing unit becomes available. For all those available units to sell the prices must eventually be lowered to pick up buyers not yet moved up to a better quality dwelling.
And all of that is assuming that the Fed doesn’t eventually raise rates.
So wait, we know what a bubble is now?
Only when it’s convenient for me — so, when I’m in a hurry to write a headline.