Housing data’s been weak through most of the recovery and expansion. Economic growth nevertheless continued, as housing’s small size relative to the overall economy muted much of its negative impact. However, recent improvements in housing data suggest the sector could provide an incremental tailwind to already resilient US economic growth moving forward.
For example, December new housing construction was up sharply to 103,000, or 12.1% m/m (36.9% y/y) over November. At a seasonally adjusted annual rate, starts clocked in at 954,000 homes.
Exhibit 1: US Housing Starts 1959-2012
Source: US Census Bureau, Thomson Reuters.
Since 1959, builders have started construction on an average of 1.5 million new homes a year. However, construction started on only 780,000 homes in 2012 and a mere 608,000 in 2011. Which translates to record low levels of new home supply. (Exhibit 2) Supply of existing homes is similarly well below historic averages. (Exhibit 3)
Exhibit 2: Supply of New Homes for Sale
Source: Thomson Reuters, Bloomberg, as of 12/31/2012.
Exhibit 3: Supply of Existing Homes for Sale
Source: Thomson Reuters, National Association of Realtors, as of 12/31/2012.
At the same time, housing affordability is near all-time highs. Exhibit 4 shows the National Association of Realtors Housing Affordability Index. A value of 100 indicates a family with the median national income has enough money to qualify for a mortgage on the country’s median-priced home. Values above 100 mean the median family has more than enough income to qualify, and so on.
Exhibit 4: Housing Affordability Near All-Time Highs
Source: National Association of Realtors, as of 12/31/2012.
Affordability is likely another factor goading housing demand higher—along with record-low mortgage rates (which, incidentally, also aid affordability). And when demand rises against constricted supply, all else being equal, prices should rise. Case in point, median prices for existing homes have risen over the past year. (Exhibit 5)
Exhibit 5: Rising Home Prices
Source: National Association of Realtors, Thomson Reuters, as of 12/31/2012.
We’ve often said a housing recovery isn’t essential to economic or stock market recovery, and that’s true of expansions as well. However, it’s likely some continuation of housing gains, probably in fits and starts over time, provides an incremental tailwind to growth moving forward—a factor many folks still fretting housing’s weakness fail to appreciate.