Merrill and Goldman on Housing

A few excerpts from two research pieces on housing.

From Merrill Lynch: Housing: something for everyone What comes next?


[W]e are making some tweaks to the housing forecast. Housing starts are likely to edge down this year to 1.24mn but recover next year. Existing home sales should also come in lower this year at 5.30 million and hold around this pace in 2020. The story for new home sales is a bit better with 650k this year and 660k next. In other words, further sideways motion for housing activity, leaving it a benign factor for the overall economy.
From Goldman Sachs: Can Lower Rates Still Boost Housing?
[O]ur estimate of the lag time between changes in interest rates and housing activity suggests the bulk of the boost is yet to come. ... we update our outlook for the growth boost from housing via both the homebuilding channel and the impact of refinancing, mortgage equity withdrawal, and housing wealth effects on consumer spending. Our model points to a healthy rebound to a 4% growth pace of residential investment in 2019H2 and an increase in the total contribution from housing to GDP growth from -0.05pp in H1 to +0.15pp in H2.

CR Notes: This first graph shows the month to month comparison for total starts between 2018 (blue) and 2019 (red).

Starts Housing 2018 and 2019Click on graph for larger image.

Year-to-date, starts are down 3.1% compared to the same period in 2018.

Last year, in 2018, starts were strong early in the year, and then fell off in the 2nd half - so the early comparisons this year were the most difficult.

My guess was starts would be down slightly year-over-year in 2019 compared to 2018, but nothing like the YoY declines we saw in February and March. Now it is possible starts will be unchanged or up slightly in 2019 compared to 2018.

New Home Sales 2017 2018This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Year-to-date (through July), sales are up 4.1% compared to the same period in 2018.

The second half comparisons will be easier, so sales should be higher in 2019 than in 2018.

So my view is housing will be a positive for the economy in the 2nd half of 2019.

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