Implications: Housing construction pulled back in April after booming in March, though signs for continued strength in homebuilding can be seen throughout the report. Supply chain constraints for key inputs such as lumber – paired with difficulty in finding qualified workers – has stymied a faster pace of building, but robust demand means that order backlogs continue to grow. The pace of activity will ebb and flow as the recovery continues, but we expect housing starts to remain in an upward trend. Why the confidence? Building permits for future construction remain near the highest level since 2006. Moreover, permits have now outpaced new construction for fourteen consecutive months. This has resulted in a backlog of projects that have been authorized but not yet started, which stands at the highest reading since the series began back in 1999. As we mentioned in a recent Monday Morning Outlook, there has been a long running deficit in new home construction. The US needs roughly 1.5 million housing starts a year based on population growth and scrappage (voluntary knockdowns, natural disasters, etc.), but we haven't built that many new homes in any calendar year since 2006. Now, with plenty of future building activity in the pipeline and builders looking to boost the inventory of homes as well as meet consumer demand, it looks likely that construction in 2021 will surpass the 1.5 million unit benchmark. This positive outlook is reinforced by yesterday's NAHB index, a gauge of homebuilder sentiment, which remained at a robust reading of 83 in May. Strong consumer demand for homes and low mortgage rates are helping offset impacts from rising materials costs. In recent news on the manufacturing front, the Empire State Index, a measure of New York factory sentiment, fell to a still strong +24.3 in May from the multi-year high of +26.3 in April. One notable detail of the report was the continued rise in costs, with the prices paid index hitting the highest level since recording began back in 2001. It seems no matter where you look – from housing to cars, metals to labor – inflation pressures continue to build. Don't expect that to abate any time soon.
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Posted on Tuesday, May 18, 2021 @ 11:46 AM
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