Wednesday, June 24, 2015

US Housing: Good Foundation? (excerpt)

Sales of both new and existing homes rose last month. That always happens during the spring. However, the data are seasonally adjusted, and were relatively weak earlier this year. There is an encouraging development for the housing industry in recent household formation, suggesting a higher trend in sales.

The total number of new households increased by 1.4 million y/y through March. This growth rate has exceeded the 1.0 million mark since October 2014. That’s the good news. The bad news is that all the new households are renting rather than buying their homes. The total number of homeowners peaked at 76.5 million during Q4-2006. It was down to 74.0 million during Q1-2015. The number of households who are renters rose 9.3 million since Q2-2004 from 32.9 million to 42.2 million.

That trend has clearly benefitted landlords of multi-family units and given them an incentive to build more of them. However, housing starts of such units have been back to their previous cyclical high for over a year. There was a big jump in May’s building permits for multi-family units, which reflected a surge of applications to beat the expiration of a lucrative tax break in New York City.

Single-family housing starts has been hovering around 700,000 (saar) for over a year, well below previous cyclical highs that typically well exceeded 1.0 million units. New single-family home sales rose to a cyclical high of 546,000 units (saar) during May, but that’s closer to previous cyclical troughs than peaks.

Today's Morning Briefing: Household Formation. (1) Narrowing bull market. (2) Three outperforming sectors. (3) Health Care way ahead of the pack. (4) Seeking earnings growth. (5) No bargains. (6) Dollar and oil weighing less on earnings revisions. (7) More households, but they are all renting. (8) Housing starts and new home sales still well below previous cyclical peaks. (9) Existing home sales rising, but who is buying? (10) Focus on market-weight-rated S&P 500 Industrials. (More for subscribers.)

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