• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: May's headline starts/permits print looks soft, and upon closer inspection...is soft.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Compendium

Today's Focus: May Housing Starts & Permits

The Census Bureau released its monthly Housing Starts & Permits data for May this morning. The big takeaway is this: No Growth.

Summarily, activity was weak across the board as both SF and MF starts declined, permits went sub-1MM, and single family starts and permits re-coupled at the low 600K level.  

The lone source of relative strength was the sequential rise (+3.7% MoM) in SF permits, however, the YTD trend in permits continues to suggest softish forward starts figures.  

  • TOTAL STARTS = -6.5% MoM & decelerating to +9% YoY from +26% prior
    • Single Family:  Down -5.9% MoM (-39K absolute)
    • Multi-family:  Down -7.6% MoM (-31K absolute)  
  • TOTAL PERMITS:  -6.4% MOM…with April revised lower to 1059K from 1080K
    • Single Family: Up +22K sequentially to +619K (still negative -1% on a YoY)
    • Multi-family: Down a big -90K MoM to 372K from 462K prior (-19.4% MoM)

While total starts and permits bounced sharply in April they were down in May. More importantly, however, the Single family component showed little-to-no signs of life in April and was down again m/m in May (SF starts down -5.9% m/m). Yesterday’s sequentially improved NAHB HMI print of 49 seems at odds with today's continuation of the soft single family data. 

Three factors are principally responsible for the ongoing weak 1H14 performance for housing. First, QM rules that took effect on January 10 of this year are having a suppressing effect on credit availability. Second, institutional investor demand for properties is waning sharply. Third, affordability dynamics have swung sharply; whereas 12-18 months ago there was a strong asymmetry favoring homeownership, today renting vs owning are close to a toss-up.

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Single Family Starts   Permits TTM

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Single Family Starts   Permits LT

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Multi Family Starts   Permits TTM

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Multi Family Starts   Permits LT

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Total Starts TTM

CONSTRUCTION ACTIVITY REMAINS WEAK AS SF STARTS TICK DOWN -6% M/M - Total Starts LT

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

Joshua Steiner, CFA

Christian B. Drake