Skip to content

Will Lower Housing Growth Lead to Lower Housing Activity?

April 24, 2017

Image

Our expectations for meaningful first-quarter economic growth are low. We’re not alone in our sour sentiment. Many economists — those at the Atlanta Federal Reserve Bank, Goldman Sachs, and the International Monetary Fund — also expect little in the way of economic growth. Anything above 2% (annualized) for the quarter would be a minor miracle. 

Many segments of the economy have fallen into inertia. Of greater immediate concern, sentiment has turned less optimistic in the one segment that has continually chugged ahead for the past five years. 

Housing has led the economy since 2012. Over that time, home-builder optimism has trended in one direction — up. The trend took a detour in April. The home-builder sentiment index posted at 68 for the month. The posting is still positive, but not as positive as in March. 

It’s understandable that home builder sentiment should slip given the recent data on housing starts.

The first quarter ended with a thud, with starts dropping 6.8% month over month to 1.215 million an annualized rate (1.5 million is the historical long-term average) in March. This was the weakest posting since November. The drop in starts dropped quarter-over-quarter growth to break even. A meaningful pickup in starts might not arise until the more distant future. Permits for single-family starts fell 1.1% month over month. 

Of course, one month of data neither makes nor breaks a trend. Starts can be notoriously volatile month to month. Still, we’re eager to see starts regain traction. New-home construction, and all the ancillary businesses it supports, is vital to sustaining what little economic growth is occurring. With many segments of the economy underperforming, the one reliable engine — housing — needs to keep things moving in the right direction. 

We’re also eager to see an upshot in corporate earnings — another indicator of a straightening economy. So far, the numbers are encouraging. Data provider FactSet reports that 6% of the companies that compose the S&P 500 have reported first-quarter financial results. Seventy-six percent of these companies have beaten the mean earnings-per-share estimate; 59% have beaten the mean sales estimate.

The economy might be sputtering at the moment, but we’re still optimistic that we could see it hitting on all cylinders before the year is over.  

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: