Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007, conjuring a fear of an organic slowdown in housing activity. While Housing Starts were down, we suspect the weakness was due to weather. Ever try to dig and pour a foundation in negative degree temperatures? We would expect to see a big rebound in the next two months as the data catches up to the eventual thaw. According to the Census Bureau, there is reason to be optimistic since permits were up 3%.
The Census Bureau report on US New Home Sales showed a welcome surge in activity to 529K SAAR, well above the 464K expected while January's data was increased to 500K from 481K. This is the strongest month for headline sales since February 2008 and the NSA single month sales at 44K were the strongest for any single month since June 2008 and the strongest for any February since 2008. This is a very encouraging start to the key spring selling season although we would caution that sales are still subject to revision (the May and August 2014 breakouts to 504K were revised down to 466K and 442K respectively). On the other hand the Census Bureau data matches the very positive sales reports from public homebuilders that have reported activity in the last few weeks, meaning that the actual breakout in activity seems real enough.
Comparing this week's New and Existing Home market we can see that New Home sales are finally moving back towards a more normal relationship with the overall housing market. New Home sales in February were 12.4% of Existing Home sales, the highest percentage since July 2008 but this is still well below the 1990's level around the 19% level and in prior housing busts the percentage only managed to drop below 15% for a single month (April 1980)¹. In other words even with a stable Existing Home market (which given limited availability may be the best we can expect for a while) there is still plenty of scope for the New Home market to expand considerably.
Of course, New Home inventory also remains constrained with the 210K for sale representing 4.7 months of sales at February's elevated pace. However, if this month's sales data is anything more than a data-blip we would expect to see a quick reaction in Starts and Permit data over the spring and summer months. At the current time we can at least conclude that the official data justifies the strong performance of the S15HOME index, which has increased 9.60% YTD, as reported on Bloomberg.
In a global slowdown with interest rates expected to remain low for the time being, we believe housing may offer an investable opportunity.
John Hess 
Falgun Jariwala 
Managing Principal Managing Director
jhess@nsinvestors.com fjariwala@nsinvestors.com
www.nsinvestors.com www.nsinvestors.com
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1. Data available on U.S. Census Bureau website:https://www.census.gov/construction/nrs/new_vs_existing.html