Following the trends . . .

Under the “New Residential Construction” portion of the most recent Current Climate column, we noted that construction activity appeared to be in seasonal moderation in April. To recap: building permits stood at 1.76 million for a 60.9% year-over-year increase; housing starts were at 1.569 million, up 67.2% year-over-year; and, housing completions were at an annual rate of 1.449 million for a 21.7% y/y jump. However, all indicators reflected comparisons to a bleak 2020 in which COVID-19 ruled. On a month-over-month basis, all were either flat or down, hence the seasonal moderation observation.

Based on May activity, the observation appears appropriate. Building permits in May dropped to an annual rate of 1.681 million, down 3.0% month-over-month and just 34.9% above the May 2020 rate, reflecting a decrease of 26 percentage points, while housing completions dropped to an annual rate of 1.368 million, down 4.1% month-over-month and representing a 16.1% year-over-year increase for a 5.6 percentage point loss. However, while housing starts exhibited a 16.9 percentage point decline in growth year-over-year, on a month-over-month basis starts were up 3.6% to an annual rate of 1.572 million units.

Coincidentally, homebuilder confidence fell to its lowest level since August 2020 by June, to a reading of 81 for single-family homes, reportedly due in part to material shortages. However, the hypothesis doesn’t really sync with the increase in housing starts. Something to keep an eye on.

Further, at this writing Bloomberg reports that lumber prices posted the largest-ever weekly decline as sawmills ramped up output and buyers held off on purchases. Prices in Chicago fell 18% during the week of June 11th and according to the report, lumber futures have now dropped nearly 40% from the record high reached on May 10th.

In the Mortgage Activity portion of the Current Climate column, we reported on the week ending May 21st, when, after two weeks of increases, mortgage applications had dropped 4.1%, followed by two more weeks of declines. But what goes down, eventually goes up and applications did increase 4.2% in the week ending June 11th.

Nevertheless, purchase applications were down 17% from a year ago mid-month, theoretically due to mortgage interest rates that stubbornly hover above the 3%+ level.

Stay tuned . . .