The thing about watching paint dry is that finally it does dry.
Right now we could be wondering if we are seeing finally some improvement in the US construction sector. The housing sector in general, and new homes and starts and particular bounced along the bottom the better part of two years adding little to no GDP growth for the US. Usually following a recession the housing sector plays a key role in a recovery, but since the US contraction was led in part by the popping of a housing bubble recovery in that sector has been nonexistent.
Data on Construction and Home-builder Confidence Improves
We had 2 positive signs from the construction sector of late however:
- Construction spending for the month of August rose to 1.4%, handily beating expectations of a 0.1% decrease. As we can see in the chart below if the first positive reading in years. Whether it's starts a trend of positive readings will be watched carefully as a return of positive construction spending would be a boost to GDP.
- Yesterday we also saw the NAHB housing market index - a measure of home-builder confidence - climb 4 points to 18 for October, also a handily beating expectations of a small increase 15. still, overall this is a week reading as 50 level in this index separates the level where more homebuilders are confident than less.
Number of Applications for Mortgages Falls
While we've had good reports for construction spending and homebuilder confidence, we did see this morning the number of mortgage applications fall by 15% compared for the week ended October 14th, compared to the week ended October 7th. that is a 15 year low and shows that despite interest rates on mortgages near record lows US home-buyers are not confident enough to step back into the housing market. this data therefore points to the continuation of the negative feedback loop in the housing industry.
Housing Starts Jump in September, but Permits Sag
The raw data that we would like to consider when thinking about the construction sector is the pace of new housing starts (new constructions) as well as building permits - a leading indicator for future constructions.
Expectations coming into the report was that housing starts would climbed to an annualized pace of 0.59 million units in September from 0.57 million units in August, while building permits were expected to fall to an annualized pace of 0.61 million units from 0.63 million units.
The results proved to be better than expected as housing starts rose an impressive 15% to an annualized pace of 658,000. At the the consensus forecast of 4.2% increase. However building permits fell more more than expected, as they dropped 5% to an annualized pace of 594,000.
- The sharp jump was led by 51.3% monthly increase in constructions of multifamily homes with at least two units, which is a more volatile part of the market.
- Constructions of single-family homes, which make up about 65% of all starts rose by only 1.7%.
Therefore, while the headline figure is impressive, if we look at the details of the starts report as well as building permits, the data release becomes a bit mixed.
The jump starts likely explains the better sentiment we had from home builders and low mortgage rates and favorable home prices should bolster expectations for home sales going forward. , The problem for the construction sector is that home-buyers may choose to look at the existing home market instead of the new home market.
US futures rose in the immediate aftermath of the nihilists while the 10 year treasury yield climbed to 2.2%.