March housing starts today were below expectations. One way to look at this is sequentially: how are they doing compared to the prior month. Disappointing:
March Housing Starts:
(month over month, seasonally adjusted)
- Single family: down 0.2%
- Multifamily: down 20%
Why is this happening? There seems to be a disconnect between some reports of publicly traded builders and the numbers.
Here's two theories:
1) there is a lag between the order activity and the starts activity because of builder concern on financing. Cancellation rates have been running between 20 and 30 percent recently; builders are reluctant to start building until all the financing ducks are in place. This might account for the fact that we are hearing that orders are indeed up but not seeing building yet.
2) publicly traded home builders are taking a bigger share of the new order pie. This is creating the illusion that the overall pie is growing, when in fact it is not. Last year new homes were about 7 percent of the total housing market; publicly traded home builders are perhaps 30 percent of the new homes, so publicly traded builders are only about 2 percent of all housing sales (!). But they have been increasing their share of the market, so that is creating the illusion that the overall market is increasing.
Okay, let's look at this a different way: the numbers are not that bad. Let's look at this like a corporation: take out the seasonal adjustments, and look at it year-over-year for the first three months of 2012. Real numbers.
(not seasonally adjusted, YTD)
- Single family up 17%
- Multifamily up 28%
Well, up 17 percent is not so bad. That is a recovery. Is it enough? Arguably, no — traders had been assuming sales increases of at least 20 to 30 percent. But again: the publicly traded guys may well be able to pull that off. We just have to wait for more data.
How about new home SALES? We get March data on April 24. But for the first two months of 2012, sales are up 8.2 percent. Again, a modest recovery.
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