The second-quarter economic report misery continues in a major way today with housing starts and permits unexpectedly falling.
The Econoday consensus was was for starts to rise 4.35%. Instead, starts fell 5.5%. Adding insult to injury, April was revised lower by 1.37 percentage points making the consensus estimate off by an amazing 11.22 percentage points.
The bad economic news keeps building, this time in the housing sector. Housing starts fell an unexpected 5.5 percent in May to a far lower-than-expected annualized rate of 1.092 million with permits likewise very weak, down 4.9 percent to a 1.168 million rate.
All components show declines with single-family starts down 3.9 percent to a 794,000 rate and permits down 1.9 percent to 779,000. Multi-family starts fell 9.7 percent to 298,000 with permits down 10.4 percent to 389,000. Total completions did rise 5.6 percent to a 1.164 million rate, which adds supply to a thin market, but homes under construction slipped 0.7 percent to 1.067 million.
Adding to the bad news are downward revisions to starts including April which is now at 1.156 vs an initial 1.172 million. Looking at the quarter-to-quarter comparison, starts have averaged 1.124 million so far in the second quarter, down a very sizable 9.2 percent from 1.238 million in the second quarter. Permits, at an average of 1.198 million, are down 4.9 percent.
Residential investment looks to be yet another negative for second-quarter GDP.
Mortgage News Dailly has some amusing comments by Lawrence Yun, the National Association of Realtors chief economist, in its report Drop in Housing Starts Could Intensify Inventory Issues.
The negative report prompted the following statement from the National Association of Realtor’s Chief Economist Lawrence Yun. “Housing shortages look to intensify and may well turn into a housing emergency if the discrepancy between housing demand and housing supply widens further. The falling housing starts and housing permits in May are befuddling given the lack of homes for sale and the quick pace of selling a newly-constructed homes. Meanwhile, job creations of a consistent 2 million a year will push up housing demand further. One thing that moving up is the housing costs for consumers: higher home prices and higher rents.”
Yun is befuddled. That’s hardly surprising given that it does not take much to befuddle economists.
Let me clear up the confusion:
- People cannot afford homes so they are not buying them.
- Builders will not purposely build homes to sell at a loss.
- The alleged demand for new homes is imaginary.
Such analysis is beyond the scope of most economists, so I am happy to help out.
Mike “Mish” Shedlock
Marc Knauss said:
Here in the Seattle area, I know that King County slow-walks the permitting process. Limited staff and inspectors mean that it takes months to years to approve a housing development. Additionally, much of the housing demand is coming from China, so we know that demand will dry up when credit and liquidity become an issue.
Your argument makes no sense. Seattle has tightly controlled development for decades, yet the influx of Chinese money means that when that money goes away your housing market will crash? Doubtful. Only recently has the influx of Chinese money exacerbated the problem. If/when the overseas money dries up it will be a good thing for young families who are looking for an affordable house with a decent amount of space. But I would suspect that the central planners in Seattle will just jump in to slow development even more.
Stuki Moi said:
That’s the plan: Use out of control, totalitarian government, to force as many as possible into debt slavery. For the privilege of living in a cardboard box under a freeway, 4 hours from where their job felating banksters are located. While babbling about how this idiocy is some sort of a “market.”
On top of that mortgage rates are going up. I heard an analyst on TV stating the FEDs decision would have no effect on mortgage rates. So raising the discount rate while reducing the FEDs MBS holdings has no effect on rates? Do you have to pass basic arithmetic to be an analyst?
The Fed is raising Short-Term interest rates, but mortgage rates are usually linked to the 10-year Treasury, so we’ve been seeing a flattening yield curve as S-T interest rates rise, but L-T rates decline.
Even Yellen has proven not to understand basics…… or if she does……
Tony Bennett said:
Mortgage rates have been trending lower … they’ll go lower.
Federal Reserve does not lead a damn thing … it follows … as always.
Carl R said:
That link shows mortgage rates at 4% now and 3.6% a year ago. That sounds more like up than down. An environment of rising interest rates would be falling prices, and that may make spec home builders cautious.
demand pulled forward and now everyone already leveraged. Prices are completely unaffordable.
Medex Man said:
When I bought my first house the rule to follow was that you could afford no more than 2.5 times your gross income. Those of my generation rarely, if ever, were foreclosed upon. Today there is a huge disconnect; median gross family income hovers around $50k while the median new home price is around $250K. Five times the prudent amount is way, way too much. The other major problem is the state and local property tax situation. In many blue state metro areas, your property tax is almost equal to a standard mortgage payment. Something had to give, and it certainly has.
Tony Bennett said:
March starts revised lower, as well
Prior starts … SAAR
March … 1.203 million
April … 1.172 million
March … 1.189 million
April … 1.156 million
The lack of building in California is due to environmentalists being in the hip pocket of planning departments. Weve been trying to put a small 21 home subdivision in for over a year and can’t even get the go ahead to start the permitting process ! They want to take take take until the project is totally unfeasible ! They ALWAYs want to make more money than the developer taking the risk, it’s not right! Then they complain about a lack of low cost housing when they are the ones to blame!!!
Medex Man said:
In California, you need a permit to start the permitting process?
Big government jumps the shark
Stuki Moi said:
“Environmentalism” may be the excuse du jour, but the underlying reasons for the policy of ensuring as many as possible are homeless and indigent, is to ensure the shoddily slapped together shacks belonging to the well connected, as well as banksters collateral, is artificially propped up as high as possible.
It’s exactly the same racket of artificially limiting supply to extract usury, that the same idiots cheering for this “system,” keep claiming Enron was “eeeeviiiiiilll” for performing back in the day.
Only difference being, Enrons little fotnote of a who-cares scheme, may have forced some to turn off their AC for a few hours. While the real estate racket, leaves people homeless, indigent, and ultimately prematurely dead. All from trivially preventable causes.
housing bailout comin said:
amazing how gov’t analists are always (overly)optimistic (until they’re not),every estimate is positive(until it’s not) never a negative estimate (ever),gov’t expectaions are always rosy (until it’s not)
People need smaller houses/apartments but zoning laws won’t allow the market to respond.
Stuki Moi said:
They need cheaper houses or apartments. Closer to work. Not shoeboxes in French style banlieues under freeways halfway across the state.
With current technology, it’s trivial to build enough, and large enough, dwellings to ensure almost every American has at least 3 or 4 of them if he so wishes.
Obtaining a roof over ones head, in a society as capital rich as America, was a solved problem decades ago. Only crass theft and harassment, by a gaggle of incompetents so utterly worthless, they couldn’t engineer a sandwich if given two bread and one turkey slice, are making it appear otherwise.
I live in MI and builders cannot keep up with demand. There are labor shortages, long waiting periods and a significant rise in wages. This obviously translates into higher prices. Thank the clueless PhD school marm on Eccles st. The rising prices will never be captured in the CPI numbers. These figures are bogus or there is some other explanation. Falling demand isn’t happening. People are paying the inflated prices as long as they can make the payment. Interest rates are low so payments are proportionately lower.
Richard Haan said:
Lawrence Yun has been the cheerleader at the NAR for almost 10 years:
five-year predictions for housing price data (all increases!), made in June 2008.
Here’s the data on that (and this probably understates it):
City Yun Reality
Milwaukee +25% to +30% -5%
Dallas +25% to +40% -2%
Seattle +25% to +40% -12%
Phoenix +10% to +50% -32%
Los Angeles “Superstar cities -20%
New York defy gravity” -10%
So not just wrong, but horrifyingly and continually wrong. “Just remember, it’s *always* a good time to buy a house.”
Didn’t the NAR know that the FOMC raised interest rates in March? Or did they fail to grasp that higher mortgage rates would slow housing sales?
The FOMC just raised interest rates again this week. Do you suppose the NAR will be smart enough to foresee further weakness in home sales in the 3rd quarter?
It’s a rhetorical question…
Tell it like it is. Becuause what it is layover BS from obama administration. Like it or not maybe Democrats for once could help out or republicans could run the table. Something’s, someone got to give.
Part of the problem in the reduction of starts and permits is a significant labour shortage in many areas of the US. Builders can’t find enough skilled labour to build the houses needed to meet demand in spite of offering higher wages to attract the skilled labour. The increase in labour costs, the increase in materials cost (due to the lumber lobby getting new tariffs on Canadian lumber) is forcing prices up. Plus limited supply is also forcing prices up.
Bureaucracy at all levels of government also slows the process in many areas (though even if this was streamlined, it might not help given the shortage of labour).
I think an important component is being missed. We lost a generation of construction workers due to the big downturn/crash in housing. Builders are the ones in short supply. In Michigan, the construction industry is, for the most part, running at maximum capacity. Also, with our mild winter here in Michigan, construction did not have the typical January through March slow down, so Spring business was pulled into the winter months. Our component manufacturing business continues to beat last year’s healthy sales figures by anywhere from 10 to 68% over last year’s monthly figures. Of course, this is just the picture in my neck of the woods, but I suspect worker shortages in the construction field are not just taking place in Michigan.
There is another reason for the decline in starts and permits – a very tight supply of qualified construction labor. Even if a builder wants to build, he probably cannot assemble the crews to do so. Multifamily is further depressed by the increases in the costs of steel and concrete, which have further reduced returns in this space.