Housing Surprises

Housing starts are taking economists by surprise. Here's why.

The sudden advance in housing starts in April surprised some economists and other observers who had taken the weaker numbers in February and March to heart (but not everyone, since if you laid all the economists end-to-end, they still wouldn’t reach a conclusion). The importance of a particular monthly metric is a little hard to pin down, but in this case the following are all possible: weak Q1 economic reports caused observers to miss some underlying strength in the housing market; or caused them to miss some underlying strength in entire economy, and the strong April housing report is a harbinger of a relatively robust Q2; or that April is only one good month, and might be an outlier, so don’t get too excited.

One takeaway from the latest report (released on Tuesday by the Census Bureau) was that single-family and total housing starts were at their highest levels since January 2008. Since almost before the recession, in other words, but not before the housing crash that proceeded it. Still, April represents some measure of recovery from the flat bottom that housing has been struck on since the end of the recession. But despite the uptick, housing is still chugging along at historically lows. Starts of just over 1 million units, which is where the rate now stands, were where housing stood during the recessions of the 1970s and ’80s. During more healthy economic times, starts were usually over 1.5 million units in any given year, and were often over 2 million units.

Altogether, U.S. housing starts came in at an annualized rate of 1.135 million units in April. That’s more than 20 percent above the revised March rate and 9.2 percent above the April 2014. Moreover, single-family housing starts in April were at an annualized rate of 733,000 units, which is 16.7 percent above the revised March figure. The bureau also reported that housing units authorized by building permits in April were at an annualized rate of 1.143 million units, or 10.1 percent above the March rate and 6.4 percent above April 2014. Starts are an important indicator of the future movement of the market.

Thus one economic indicator is looking better, and the overall picture is looking a little more mixed rather that straight-up sluggish for the second quarter, at least compared with the first. Though this week’s housing report comes too late to influence the Federal Open Market Committee’s most recent meeting, which was held on April 28-29—and the minutes of which are being released on Wednesday—it might be a little more fodder in the near future for those at the central bank who will argue for higher interest rates. Even so, it’s fairly certain that rates aren’t going up this month or probably before the end of the summer.