Weekly Economic Update - Builders Skittish?

Residential construction numbers continue to be sluggish. While they improved over those in June, July numbers are still not what analysts and the housing industry are hoping to see.  Builders aren’t clicking their heels together the way they were at the end of last year either. Builder confidence in August was the lowest so far this year.


Inflation remains moderate per the CPI, but the housing component of that index is not. Its increase accounted for the majority of the month’s rise.

Builders have been slow to get over the housing crisis. After all, it hit them hard and it’s understandable if they remain a little skittish. The National Association of Home Builders (NAHB) Housing Market Index (HMI), measures builder confidence. A score of 50 on a 100-point scale is considered sort of OK, but it hit a low of 9 in January 2009. The climb back to 50 took over four years, and it hit a decade high of 74 only last December. It has been all downhill since. The index oscillated between 68 and 70 from March through July and hit a 10-month low this month, dropping to 67.

Hard to tell if this weakening euphoria is translating into residential construction stats, but they have been skittish too. While they improved over those in June, July numbers are still not what analysts and the housing industry are hoping to see.

Housing permits were up 1.5% and single-family permits did a little better, up 1.9%, putting both ahead of last year by 4.2% and 6.4%, respectively. Housing starts managed a 0.9% gain, but remain 1.4% lower annually. Both increases however were off of June numbers that were even worse than originally reported. Permits were revised down only slightly but starts got a substantial downgrade. This means July starts would have lost ground had the original June estimate held. Not a lot of attention is paid to the rate of completions, but those were also down both for the month and year-over-year.

Results in the West were mixed. Permits rose slightly,1.2% and 2.8% for the month and year, but housing starts slid 19.6% compared to June and were off 10.9% on an annual basis. Completions are down 13.3% for the month but are still ahead of last year by 11.8%.

Backing Off

The Consumer Price Index (CPI) a measure of inflation, creeped up a bit in July, rising 0.2%, with the cost of shelter accounting for almost 60% of the gain. Housing prices grew 0.2 % and owners’ equivalent rent by 0.3%, boosting the shelter index by 3.5% for the year. Fortunately, this was offset by a steep decline in the energy index, down 0.5% on top of a -0.3% change in June. The Energy Index has gained 12.1% over the last year, pushing up the overall CPI.

While gasoline, electric, and gas utility prices are all backing off, housing apparently is not.

Speaking of backing off, mortgage interest rates did that too. Freddie Mac reports a drop of 6 basis points in the 30-year rate to an average of 4.53%.

08.17.2018

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