Housing starts bounced 6.6% from last month’s dismal plunge of 8.86%.

Last month Bloomberg Econoday cited “fundamental strength“. This month, Bloomberg curiously describes starts as “soft“.

Which is it?


Highlights

Housing starts and permits picked up in April but the pace is moderate. Starts rose 6.6 percent to a 1.172 million annualized rate but the year-on-year rate has sunk into the negative column, to minus 1.7 percent. Permits rose 3.6 percent in April to a 1.116 million rate but here too the year-on-year rate is negative, and more so at minus 7.2 percent.

The year-on-year weakness, however, reflects multi-family units which are now cooling following prior strength. Starts for single-family units, which are more expensive to build and offer a core gauge for the housing sector, rose 3.3 percent in April for a year-on-year plus 4.3 percent while single-family permits rose 1.5 percent for a plus 8.4 percent on-year rate.

Regionally, the Midwest is showing the most strength with gains for both starts and permits in the month and on the year. The South follows next in strength with the West lagging and the Northeast, which is already densely developed, far behind.

Momentum in housing looks a little soft this Spring though the sector, as underscored by the strength right now in single-family trends, is still a main positive for what is a modest economic outlook.

Housing Starts

Housing Starts 2016-05A

Fundamental Strength or Fundamentally Soft?

Is there fundamental strength or are housing starts soft?

To help answer the question let’s take a look at what I said a month ago in Housing Starts Plunge 8.8%, Permits Plunge 7.7%; Bloomberg Cites “Fundamental Strength”.

Fundamental Strength

Inquiring minds may be interested in exploring Bloomberg’s comment “Nevertheless, there is fundamental strength in the year-on-year rates, at plus 14.2 percent for starts and a less spectacular plus 4.6 percent for permits.

I happen to have a series of pictures that adequately displays the “fundamental strength” that Bloomberg cites.

Housing Starts 2004-2016

Housing Starts 2016-04-20

The fundamental strength of March 2016 vs. March 2015 is based on a lowball number last year that was then downplayed as “the weather”.

Today, beating the previous year’s bad weather represents fundamental strength.

Based off that rationale, let’s look  ahead to see what is fundamentally on the horizon.

April’s Housing Starts “Fundamental” Number to Beat

Housing Starts 2016-04-20A

Housing Permits 2004-2016

Permits 2016-04-20

June’s Housing Permits “Fundamental” Number to Beat

Permits 2016-04-20A

Fundamentally Speaking

In April, I foresee “fundamental weakness” in housing starts and in May and especially June, I foresee massive “fundamental weakness” in permits based on Bloomberg’s methodology that today sees “fundamental strength”.

Flatline

Last month’s “fundamental strength” morphed into this month’s “soft” because the year-over-year growth in starts is negative 1.7%. Permits are down 7.2% year-over-year.

Looking ahead to next month, using the same methodology, expect to see “fundamental” strength as or weakness as detailed above.

In reality, the 5-month moving average has not done much for nine months. Starts have been range bound for a year.

Whether that represents fundamental strength or fundamental softness is in the eyes of the beholder.

Mike “Mish” Shedlock