Home Starts on the Brink of Surging Soon
Economist Cites Relationship With Sales
A trend has unfolded recently that is leading at least one economist to theorize that housing starts are poised to take off soon.
Neil Dutta, head of U.S. economics at Renaissance Macro Research, was quoted in a Bloomberg article recently that new home sales have steadily increased, while new home starts have declined.
New home starts dropped 5.8 percent in August, and have climbed just 0.9 percent year-over-year. Single-family starts have fallen 6.0 percent month-over-month, and are down 1.2 percent from a year ago.
At the same time, new home sales dropped 7.6 percent in August, but jumped 12.4 percent in July, the strongest pace since October 2007. Sales are up a whopping 20.6 percent year-over-year, and have increased 13.3 percent year-to-date, through August.
The last time the ratio of starts to new home sales was this low (right around the beginning of 2015), starts ended up rising robustly for the next 12 months, Dutta was quoted as saying in Bloomberg.
In its "U.S. Economic Outlook: September 2016," the National Association of Realtors is predicting new single-family home sales will increase 12 percent in 2016, and nearly 11 percent in 2017. In the same report, the NAR is forecasting single-family home starts will climb 11 percent in 2016, and nearly 9 percent in 2017.
Fannie Mae's "Housing Forecast: September 2016" says single-family home starts will go up nearly 10 percent in 2016, and a whopping 16.2 percent in 2017. Sales of new single-family homes will jump 13.4 percent in 2016, and another 8.2 percent in 2017.
Home Purchase Sentiment Index Drops in August
Fannie Mae's Home Purchase Sentiment Index (HPSI) dropped 1.5 points to 85.0 in August, giving back nearly half of the 3.3 points it garnered the previous month when the HPSI soared to an all-time high.
The HPSI is derived from Fannie Mae's monthly National Housing Survey. In the survey, 1,000 Americans are polled via live telephone interviews to assess their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence.
Four of the HPSI's six components fell in August. Most notably, the share of consumers who expect home prices to go up in the next 12 months declined six percentage points. Also, the component that asked consumers whether now is a good time to sell a home fell five percentage points.
Overall, however, the index has been trending upward, a positive sign for the industry over the long term. The HPSI is up 4.2 points since August 2015, Fannie Mae said.
"Consumers have a fairly optimistic 12-month outlook on housing at the end of the summer home-buying season, supported by increased job confidence and more favorable expectations regarding their personal financial situations compared with this time last year," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The return to a slight upward trend in the HPSI during the spring and summer is, thus far, in line with our forecast, which calls for 4 percent growth in home sales in 2016 to the best level since 2006, and continued improvement for 2017."
The net share of those who said mortgage rates will go down over the next year fell 2 percentage points to -38 percent, after increasing for the past three months.
Also, the net share of respondents who said they are not concerned with losing their job rose 4 percentage points to 73 percent.
And the net share of the people polled who said their household income is significantly higher than it was 12 months ago fell 1 percentage point to 10 percent.