5. The perfect storm
Data released Tuesday showed U.S. home building starts in December were the lowest since September 2016, and the 11.2% fall from November was the biggest one-month decline since January 2007.
- But U.S. building permits rose during the month, by 0.3%, meaning a sharp divergence between the number of actual building constructions started and the number of permits filed to build.
What they're saying: "The divergence... reflects the December chaos around Federal Reserve interest and balance sheet policies, fearing new tariffs on imported construction materials, declining small business confidence and a federal government shut-down that damped new start enthusiasm," Steven Skancke, chief economic advisor at investment firm Keel Point, and a former Treasury Department official, tells Axios in an email.
- The housing starts data collection was interrupted by the 35-day shutdown, which Skancke and others say can have a disproportionate negative impact.
- Plus, U.S. interest rates rose through Q4, the stock market sold off and confidence among homebuilders suffered as did homebuilder stocks based on the NAHB index.
- It was "the perfect storm," Bank of America Merrill Lynch's Global Research team said in a note. "The good news is that both have rebounded impressively since the start of the year. This sets up for a recovery in starts as builders feel better about their growth prospects."
- Further, they said, the last time the gap between the two measures was this large was May 2015, "and starts rebounded sharply in the month following."
Yes, but: "While we think the data will recover in the near term, it will still leave a further slowing in housing activity," BAML's analysts said.
The bottom line: "For a housing sector already assumed on shaky legs, this is alarming," said Jon Hill, interest rates strategist at BMO Capital Markets.