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Housing: Six Signs of a Better Year Ahead

US Single-Unit Housing Starts are turning the corner to cyclical rise, and that is good news for us all because Starts serve as a bellwether for the entire economy. This green shoot is specifically encouraging for many related industries. Manufacturers, wholesale distributors, and retailers of construction materials will get busier in 2020. More labor will be required, and contractors should experience more profit opportunities. Expect increased tax revenues as well as increased revenue for realtors and closing attorneys. The benefit also accrues to the entire supply chain for appliances, lighting fixtures, air conditioners, lawn mowers and all manner of outdoor equipment, and all the other items homeowners buy for their houses.

The Single-Unit Housing Starts 12/12 is now at the lowest level in over seven years (-3.2%, Phase D), and the length of decline is slightly longer than normal. It would be normal for a cyclical low to occur now, and, fortunately, there are internal and external indications of near-term improvement in this industry. The more volatile 3/12 is rising off a May 2019 low, and Starts for the last three months are 1.7% above one year ago. The 12MMT stopped declining in June and is poised to begin a rising trend that should extend through 2020 and well into 2021.

Six signs of near-term cyclical rise for the Single-Unit Housing Starts 12/12 are:

Indicator

Low

Lead-time (Months)

Estimated Housing 12/12 Low

30-yr Mortgage 12/12 (inverted)

Jan

8

Sep

National Association of Home Builders Housing Market Index 3/12

Jan

7

Aug

Pending Home Sales 12/12

Mar

6

Sep

Single-Family Home Permits 12/12

Mar

6

Sep

Permits for all types of housing 12/12

Mar

4

July

Existing Home Sales 12/12 (tentative)

Apr

3

July

 

Industry participants must prepare to get busier through 2020 and into 2021. This is a good time to make sure your business processes are efficient and cost containment systems are in place. We suggest that you quickly work with your financing source to expand your pool of working capital, and ensure your operation will not be overwhelmed, functionally or financially, as we head into a solid increase in housing starts. Good times are here for those who are prepared.

Alan Beaulieu
President