America’s Housing Conundrum Persisted In September

Housing starts fell last month, data out Tuesday showed.

Typically, I’d offer a one-sentence explanation, but like everything else in the post-pandemic world, there are too many factors in play to ascribe causality.

Starts dropped 1.6%, the second-biggest decline since April (figure below).

The annual pace, at 1.56 million, was well short of consensus. Economists expected 1.62 million on the headline print.

It’s not difficult to pen the boilerplate copy. The pandemic triggered a flight to the suburbs and record-low mortgage rates were fuel on the fire. Voracious demand ran up against supply constraints, prices soared and the Fed took some of the blame for putting homeownership further out of reach for many renters.

So, here we are, 18 months (give or take) later staring at an extremely convoluted conjuncture. We can list the relevant factors, but that’s not the same as determining which ones mattered most in any given month, let alone predicting which will abate, which will persist and, perhaps most importantly, the extent to which market forces will sort this out for us.

Single-family starts were unchanged in September. Volatile multifamily starts dropped 5%. Permits dove nearly 8% (figure below).

The pace, 1.59 million, missed the lowest estimate from four-dozen economists (1.61 million).

I continue to believe that unless and until prices recede, the market is vulnerable to… well, to price declines.

That tautological assessment implicitly assumes demand destruction facilitated by a buyer’s strike will be sufficient to balance the market. But it’s hardly that simple.

For one thing, demand is still a semblance of robust. And not all buyers are the same. The cost of financing is still near record lows and that quite clearly matters for a highly levered asset.

Crucially, the supply side of the equation is still distorted by labor shortages and difficulties sourcing materials. Single-family homes authorized, but not yet started, barely budged last month (figure below).

That doesn’t exactly scream “progress”.

In any case, you can make of these figures whatever you like. Or whatever you dislike.

And I mean that literally, by the way. You can dig into the report and create a limitless number of visuals to support any story you want to tell. In the pandemic era, virtually all of those stories could be true.


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