May Housing Starts - Yikes!

by: Eric Basmajian


Housing Starts came in at the lowest since September 2016.

Housing Starts declined (-5.5%) from last month.

This is the second consecutive month of year over year declines in housing starts.

This is a bearish report for the housing market.


I have been bearish on the housing market for the past couple of months, outlining the slowdown that has been very apparent in the economic data. This month's housing starts report continued that trend and accelerated to the downside.

May housing starts declined -2.4% year over year vs. -1% last month.

Building permits declined -0.8% vs. +6% last month.

Housing starts are the number of new residential construction projects that have begun during any particular month. The New Residential Construction Report, commonly referred to as "housing starts," is considered to be a critical indicator of economic strength.

Those who refute my stance on the housing market do so with sentiment, feeling and anything but hard data. The data can not be disputed and it is slowing.

This month's read on housing starts should give investors in housing a yellow light at the very least.

Housing Starts & Building Permits:

(Data from the Census Bureau)

Housing starts declined sharply this past month. The month to month move, although negative, is not what I focus on. I focus on the trending direction of the year over year growth. The black line represents a long term moving average of the year over year growth and the grey line is simply the year over year growth.

It is easy to see the peak growth in housing starts came at the beginning of 2014 and declined sharply. Growth moved sideways to upwards for the better part of 2015 and 2016 before resuming the downtrend.

That downtrend is now firmly intact and converging towards zero. The year over year growth is already negative and one more negative reading will put the trending line in negative territory as well.

Building permits show nearly the exact same picture.

The monthly reading on building permits was not as weak as housing starts but the trending picture looks nearly the same.


The housing market is slowing, not crashing, simply slowing. I always pound the table on this point because many are quick to call you a perma-bear when that is not the case. If growth goes from +30% to -2.4%, as it did in this case, that is slowing...

When growth slows, I get bearish. When growth accelerates, I am bullish.

The slow down is starting to pick up speed and this should concern those involved in the housing market or housing related stocks. ITB is the ETF that tracks the homebuilders and while the performance has been strong YTD, this is still a sector I would strongly avoid.

Many 'feel' housing is strong and will point to anecdotes of how their town has a lot of construction but that is not what is being reported in the data.

The data across all housing metrics, expect for price, is deteriorating and deteriorating at an accelerating pace.

Home prices are the last to fall so I continue to expect housing to roll over in the next 12-16 months as I began to forecast a few months back. That thesis is playing out very nicely and the data is beginning to corroborate that view.

I'll change my stance when the data changes but for now, housing starts declining -2.4% from a year ago and falling to the lowest level in eight months is anything but bullish.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.