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The U.S. housing market is taking off: Morning Brief

Myles Udland
·Markets Reporter

Wednesday, December 18, 2019

Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Consumers save the day again

It was October 2018 and the housing market was saying something had gone very wrong with the U.S. economy.

The XHB ETF that tracks homebuilder stocks fell 13 sessions in a row. At one point, the ETF had declined in 23 of 25 trading sessions.

About two months before the bottom would fall out of the market and investors would endure their worst year since the financial crisis, the housing market was the market’s canary in the coal mine.

Rising rates, declining consumer confidence, and fears over tariffs were among the factors conspiring to put the housing market under stress. And potentially short-circuit the entire economic expansion.

Fast forward 14 months, and the housing market in the U.S. is taking off, putting to bed imminent recession fears and lending further credence to the Fed's case for lowering interest rates three times this year.

On Tuesday, the November data on housing starts and building permits showed permits issued for all new private home construction hit the highest level since May 2007.

Permits issued for new single-family homes totaled the most since August 2007 while permits for new multi-family homes rose to a four-year high. November also marked the fifth straight month that building permits have topped expectations, the series' longest streak since December 2012, according to data from Bespoke Investment Group.

Ian Shepherdson at Pantheon Macroeconomics said on Tuesday that, "these data support our view that investment in residential structures is likely to rise at a double-digit pace in both the fourth and first quarters, at least, thereby offsetting the ongoing meltdown in business investment in commercial and industrial structures."

As Ed Leamer famously argued in his 2007 paper presented at Jackson Hole, the housing market is the economy. And the business cycle is really a consumer cycle.

New homes being built in Phoenix, AZ. (Getty)
New homes being built in Phoenix, AZ. (Getty)

The 2018-19 mini-cycle we've seen play out is one in which the consumer has held firm while the business sector stalled. The consumer economy, once again, gets the job done.

Tuesday's housing data also follows the homebuilder sentiment report released Monday that showed optimism is at a 20-year high.

Take together these two data points and the performance for homebuilder shares this year — through Tuesday's close, XHB was up over 40% this year and trading just below a record high hit back in early 2018 — and we see yet another pillar of the recessionary thesis that has fallen apart in late 2019.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applications, week ended Dec. 13 (3.8% prior)

Earnings

Pre-market

  • 7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 88 cents per share on revenue of $4.43 billion

Post-market

  • 4:00 p.m. ET: Micron (MU) is expected to report adjusted earnings of 47 cents per share on revenue of $5.00 billion

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