Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Recapping Another Strong Week of Housing Data

Housing data showed signs of continued reacceleration this week as Homebuilder Sentiment, Housing Starts, Building Permits all exceeded consensus expectations while Existing Home Sales continued it's reacceleration as well. The combination of lower mortgage rates and pent-up demographic-driven demand has spurred a recovery in new home construction this year following the "mini-housing recession" experienced in 2018.

On Monday, the NAHB reported that homebuilders are as confident as ever. With a reading of 76, the Housing Market Index climbed to the highest level in 20 years. Among the three subcomponents, Current Sales rose eight points to 84, Futures Sales increased one point to 79, and Buyer Traffic hit all-time record highs at 58, up 4 points.

Among the regional indexes, the Midwest saw a jump to the highest level on record while the West and South regions continue to record the strong gains. The Northeast, however, continues to lag. In December, the West region declined three points to 67, the South lost 1 point to 66, the Midwest gained 5 points to 64, while the Northeast lost 1 point to 45.

On Tuesday, US Census Bureau reported better-than-expected Housing Starts and Building Permits data. The US Census Bureau reported that housing starts rose to a pace of 1.365 million in November, higher than consensus estimates of 1.345 million. Building permits rose to a rate of 1.485 million, higher than estimates of 1.418 million. The gains were broad-based with single-family rising for the sixth consecutive month and multifamily showing continued signs of reacceleration as well.

Seemingly an impossible feat just five months ago, 2019 may actually record positive growth in housing starts when all is said and done. The strong end of 2019 for home construction comes after one of the worst eight-to-twelve months for home construction since the financial crisis. The 13.6% year-over-year jump in total starts in November pulled the trailing-twelve-month rate into positive territory for the first time since early 2019. Single-family starts climbed 8.9% year-over-year while multifamily starts jumped 16.4%. 

Existing Home Sales data was mildly disappointing in November, pressured by the lingering shortage of sales listings. The National Association of Realtors reported that Existing Home Sales dropped 1.7% last month to a seasonally adjusted annual rate of 5.35 million, which is 2.7% above last year's rate. Despite this monthly decline, this was the fifth consecutive month seeing year-over-year growth following seventeen straight months of declines. October's rate of sales, meanwhile, was revised lower to 5.44 million from 5.46 million. Existing home sales will likely end 2019 with flat to slightly negative growth after recording -3.5% growth in 2018.

You can't sell what's not for sale. Supply constraints were the headline of this report as the number of properties for sale dropped to 1.64 million units, a 5.7% dip from the same period last month. This represented just 3.7 months of supply at the current sales rate, near historically low levels. After building throughout 2018 and into early 2019, inventory levels of existing homes have retreated over the last eight months, corresponding with the sharp pullback in mortgage rates. Inventory levels of newly completed homes have begun to finally tick higher given the reacceleration in new home construction over the last two quarters.

Bottom Line: New home construction has been slow to recover since plunging during the recession, and by nearly every metric, the US has been significantly under-building homes - particularly single-family homes - over the last decade. The effects of this housing shortage, the data suggests, have been a rise in housing costs through higher rents and a growing share of spending allocated towards housing and housing-related services. Meanwhile, millennials - the largest generation in American history - are coming full-steam into the housing markets over the next decade amid this period of historically low housing supply. We believe that this combination of historically low housing supply and strong demographic-driven demand has resulted in a compelling macroeconomic backdrop for companies involved across the US Housing Industry over the next decade.

For an in-depth analysis of all real estate sectors, be sure to check out all of our quarterly reports: Apartments, Homebuilders, Student Housing, Single-Family Rentals, Manufactured Housing, Cell Towers, Healthcare, Industrial, Data Center, Malls, Net Lease, Shopping Centers, Hotels, Office, Storage, Timber, and Real Estate Crowdfunding.

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