US Housing Starts: solid numbers, might be exaggerated - Wells Fargo
|According to analysts from Wells Fargo, the December housing start report showed solid numbers, but they warned that number might be exaggerated.
Key Quotes:
“Thanks to an outsized surge in the volatile multifamily component, housing starts ended 2016 on a solid note, rising to a 1.226 million unit pace in December from an upwardly revised 1.102 million unit rate in November. Although the strong reading is welcome, the level of starts looks to be bit exaggerated, especially as we are in the seasonally slow period of the year and swings in the data due to the seasonal adjustment process and weather distortions play a larger role in the headline reading.”
“Permits, which tend to be less volatile, fell 0.2 percent in December but grew 1.9 percent on a year-over-year basis.”
“With December now in the books, we see that the annual average for permits is running ahead of starts, pointing to a pickup in activity in the coming year.”
“Another seemingly hopeful sign is builder sentiment. The NAHB/Wells Fargo Housing Market Index remained at an elevated level in January, suggesting some upside risk to overall starts. Although builder sentiment is typically seen as a forward-looking indicator for starts, the 11-year high in December and still-elevated reading in January seems to be somewhat unbridled and could also reflect some election euphoria. Similar to residential borrowers, developers likely rushed to “lock-in” financing.”
“Looking ahead, the underlying fundamentals and still rising credit availability suggest starts have more room to run. We expect starts to average a 1.17 million unit pace in 2017 and 1.22 million unit rate in 2018.”
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