Morning Report: Housing starts jump

Vital Statistics:

S&P futures4,1697.4
Oil (WTI)63.52-0.04
10 year government bond yield 1.58%
30 year fixed rate mortgage 3.16%

Stocks are higher this morning on strong economic numbers out of China. Bonds and MBS are up.

Housing starts jumped 19% MOM and 34% YOY to a seasonally-adjusted annual rate of 1.74 million units. This is certainly a good number, however remember the base case issue – in March of 2020, the economy was shut down, and in February we had a lot of bad weather. Still, it is an encouraging number. In the grand scheme of things, 1.7 million is not that huge of a number; in fact it is just about average.

Note that chart goes back to the 1950s, and the US population has increased substantially since then. If you take the series and divide it by the US population, you get a sense of how much the US has underbuilt over the past decade.

Building Permits rose 30% YOY to 1.72 million. On a month-over-month basis, they rose 2.7%.

As the starts divided by population chart shows, the US needs a lot of housing immediately. Existing home sales data shows a dearth of inventory, and home price appreciation is soaring. In the fourth quarter, just about every homebuilder was reporting fat gross margins, so the builders have every incentive to build, especially since work-from-home has made the exurbs more attractive. The exurbs, with cheaper land will attack some of the affordability issue. Housing will finally do some of the heavy lifting for US economic growth.

Congress is also introducing a bill to encourage more building near transit stops. My guess is this is primarily a messaging bill since local communities really call the shots with zoning and environmental statements, etc. With all of the headaches of building in the cities, with workers heading outwards, along with eviction moratoriums, I can’t see developers getting too excited about this, but you never know.

The Biden Admin is planning a first-time homebuyer bill. It would provide $25,000 cash, usable at closing, for certain first-time homebuyers. It would be available only to first-generation and economically disadvantaged homebuyers. It will be means-tested and will be available only to people who make less than 120% of area median income, and their parents could not have owned a home in the past 3 years (although if the parents lost their home in a foreclosure or short sale, it won’t apply). The base-case grant is $20k, but if you are part of a group that has been “subjected to racial or ethnic prejudice” you get an extra $5k. It sounds like there will be a lot of moving parts here, so it will be interesting to see how much of an impact it really makes.

Consumer Sentiment improved in April, according to the University of Michigan Consumer Sentiment Survey. The improvement was driven more by current economic conditions than it was by future expectations, which is also encouraging.

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