Why U.S. Housing Market May Be Healthier Than We Think
The Census Bureau’s monthly report on new home construction is one of the most important economic indicators out there.
Since homebuilding, buying, and furnishing, fuel jobs in many industries, it’s a key metric to track to sound smart when talking about the economy with your friends—and make good financial decisions yourself.
Recap of Yesterday’s May 2019 Housing Starts & Building Permits Data:
– 1,294,000 building permits issued
– Construction started on 1,269,000 new homes
– 1,213,000 new homes finished in May
– Building permits up 0.3% from April to May, but down 0.5% from May 2018
– 3.7% increase in building permits for single-family homes from April to May
– 1,269,000 housing starts in May down 0.9% from April estimate*, down 4.7% from May 2018
– Housing completions down 9.5% from April estimate and down 2.8% from May 2018
Some of these numbers might look nasty at first. May housing starts and completions both fell well below the government’s estimates from last month.
1.26 million is relatively low for housing starts—the modern historical norm for housing starts is between 1.3 and 1.5 million.
Is this a sign of a housing slump?
Not if you ask me. An increase in building permits (0.3%) and a notable increase in permits for single-family homes (3.7%) is a healthy economic indicator. It shows builders are still confident about demand for homes.
Housing starts are a leading indicator, meaning it shows us where the economy is going—not where it’s been. That’s why forward-looking numbers like permits are the most important part of this data.
If we saw consistent declines in permits and starts, that can tip off an economic slowdown or a recession. This data shows we have a slump in housing starts, but build permits are still growing.
Homebuyers are still hungry for their slice of the American Dream (and for what it’s worth, I don’t see this waning either because it’s part of our American DNA).
If builders are building new homes, that means the homeowners are going to buy furniture, appliances, and all the tchotchkes that come with home ownership, fueling more economic activity.
With mortgage rates at insane lows, former fence-sitting homebuyers might jump into the market, and this could continue to bolster building permits in the next few months.
We’ll keep watching and translating it for you, and below are a few other digestible economic updates.
– The jobs report nobody talks about tells us 2 critical things about the economy
– 7 Million U.S. Homeowners Can Refi Right Now. That’s 1 Million More Than Last Week.
– Weak May Jobs Growth Keeps Mortgage Rates Insanely Low
– *This comes with a ridiculous 12.9% margin of error, so as always, we have to wait until next month’s revisions to fully make sense of this number.