The accompanying chart tells the story. Single-family starts have been trending lower since last November. There was a brief interruption of that downtrend when starts spiked in February, but with the passage of time—and with continued declines since February—that spike now looks clearly to be a random blip. In line with this conclusion is the pattern for single-family permits, which also have been trending slightly lower since November, but without any February blip to confuse things.
This is not to say there have been no sources of confusion within the housing data. As discussed in our August 23 installment of By the Numbers, new-home sales have been confounding the homebuilding downtrends by showing continuous and outsized gains for the last four months.
Our assertion then was that new-home sales were rising because of attempts by homebuilders to liquidate inventories in the face of a stalling-growth market outlook, but we acknowledged that one might also read the new-home sales rise as a portent of a coming rebound in housing starts. Today’s news would seem to put the kibosh on that latter possibility.
Homebuilders have been seeing those sales gains since April, and four months later, they are still cutting back on the permitting and construction processes. It is hard to read this as anything other than a toppy/declining homebuilding market, with sales pushed through to contain inventories.
Yes, homebuilder confidence indices have come in especially strong lately, but those indices were giving similarly misleading indications when housing was peaking in 2005–06. And yes, the new-home sales gains this year have been substantial, but we needed most of those gains just to sustain current levels of starts and to prevent unwanted inventory build-ups. The housing data are not unequivocal, but the overall message is clear enough to conclude that the starts downtrend will continue and that new-home sales will top out similarly in the months to come.