What Will Next Week’s Delayed Update On Housing Starts Reveal?

Recent reports from the housing sector point to a new round of weakness in this critical slice of the US economy, potentially raising a warning flag for the year ahead. The jury’s still out, in part because a critical update has been delayed, due to the partial government shutdown that ended late last month. The Census Bureau has rescheduled the December figures on residential housing construction for next week (Feb. 26). Using a variety of sources to forecast the update suggests the numbers will bring a mixed bag of news.

Economists are looking for housing starts to hold steady for the monthly comparison. Econoday.com’s consensus forecast calls for no change in December: starts are projected to remain at 1.256 million units, a middling number relative to 2018’s range. The good news: this forecast translates to a rebound in the implied one-year trend to a 3.8% advance – the first positive year-on-year rise since September.

The Capital Spectator’s average combination forecast also anticipates a pickup in the annual comparison. The point estimate sees a 3.4% rise vs. the year-ago level.

Looking to the months ahead, however, suggests that the annual change will continue to bounce around a roughly flat trend. In other words, the strong annual gains that prevailed several years ago aren’t set for a return engagement in the near term.

Today’s survey update for home builders is expected to bring relatively upbeat news. After a sharp drop in sentiment in late-2018, the modest rebound in the Housing Market Index in January is on track to hold steady in the February update (scheduled for today at 10:00 am Eastern). If correct, the news will hold out the possibility that homebuilders will remain cautiously optimistic on the outlook.

Meantime, a modest degree of firming is expected for Thursday’s report on existing home sales. The consensus forecast sees the January total rising slightly to 5.05 million units, up from 4.99 million in December. Although that’s only a slight gain, it’s encouraging (assuming it’s accurate) in the sense that the hefty slide in December, which left sales at the slowest pace in three years, isn’t continuing.

Zillow, a real estate data firm, is also expecting a rebound in existing home sales for January.

We expect existing home sales posted a modest rebound in January despite headwinds associated with the partial government shutdown, rising 0.9 percent from December to 5.04 million units at a seasonally adjusted annual rate (SAAR). They remain down 6.4 percent from a year earlier.

But as Zillow advises, there’s still plenty of mystery surrounding the housing market. “The outlook for new home sales is somewhat cloudier, because December new home sales data still have not been released as a result of the partial government shutdown.

It doesn’t help to recall that pending home sales — a forward-looking measure — remain deeply negative, falling nearly 10% in December — the 12th straight month of annual loss.

If the next round of housing data dodges a bullet, which appears like a reasonable bet at this point, the news will support recent estimates that the US economy can maintain a moderate pace of growth in this year’s first quarter. It’s too early to dismiss the possibility that the recent deceleration in the macro trend will continue. But if the housing numbers in the days ahead are relatively upbeat, the case will strengthen, if only marginally, for expecting that the slowdown in US output in last year’s second half will stabilize in this year’s first quarter.