Article source: ConstructConnect
GDP’s Underpinning from Housing Starts Weakens
The housing starts numbers that analysts key on are monthly ‘actual’ figures, in units, that have been seasonally adjusted and annualized (i.e., extrapolated to yield a yearly total). The acronym for such a calculation is SAAR − i.e., seasonally adjusted at an annual rate.
Based on demographic factors (e.g., population growth and the rate of family formations), with consideration also given to the pace of demolitions, the annual level of new home groundbreakings in the U.S. should currently be about 1.6 million units. That would be ideal.
Instead, and as is apparent from Graph 1, the monthly U.S. SAAR figure has been mainly stuck near 1.3 million units for the past several years.
U.S. national housing starts through May of this year, 2019, have averaged only 1.238 million units SAAR, a decline of -5.5% versus the first five months of 2018. To place this in a historical context, there has not been a decline in the annual level of U.S. housing starts since 2009.
To further elaborate, a record-long ten-year expansion in the economy has been enabled by a similarly lengthy period of year-to-year positive changes in housing starts.
Sustained strength in new home construction is often a mainstay of GDP growth. When it is absent, nagging worries begin to surface about the economy’s ability to maintain good prospects.
