Better Late Than Never: Housing Comes Alive

It looks like Home Depot’s bid to fill 80,000 temporary positions has paid off; the company recently posted better-than-expected earnings and revenue numbers as consumers continue to spend money on existing homes. While we made mention of this trend last month in our housing market performance update, we also noted that formulating an accurate housing starts prediction would be a tall order given the available data at the time.

But it appears that the market has jolted to life in the last four weeks. Despite home-builder confidence levels declining another two points in early May, new construction surged to its highest level in nearly eight years according to data just released by the US Commerce Department.

Housing starts increased to an annualized rate of 1,135,000 million, which is 20.2 percent above the revised March estimate of 944,000 and 9.2 percent above the April 2014 rate of 1,039,000. Also of note, single-family housing starts increased 16.7 percent above the revised March figure of 628,000.

Regarding the news, Morgan Stanley economist Ted Wiseman noted, "The strong rebound in housing starts confirmed expectations for housing to accelerate substantially in the second quarter and be a stand-out growth contributor amid otherwise sluggish indications for a pickup in GDP growth."

As we also noted last month, the 30-year fixed mortgage rate had been inching closer to its 40-year low posted in 2013 (3.41 percent). That rate has ticked up slightly over last month to 3.85 percent for the week ended May 14. While reports are that existing home supply is relatively tight, the new starts number coupled with an attractive mortgage rate should help move the sector through 2H2015.

More specifically for the forest products industry, new applications for building permits in April were at a seasonally adjusted annual rate of 1,143,000, which is 10.1 percent above the revised March rate of 1,038,000 and 6.4 percent above the April 2014 estimate of 1,074,000.

Regardless of recent murmurs about a stock market correction on the horizon, this latest data from the Commerce Dept. shows that there is indeed a heartbeat within the US housing market. Low rates, buyer incentives and inventories of new-home construction await those prospective home buyers ready to relocate or up/down size through the rest of the year. Whether or not it will be enough to keep stocks afloat through 2015 remains to be seen.