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Aggregate housing data slowed in August, but the data below the surface reveals some potential shifts in the long-term preferences of buyers.


Housing starts and building permits declined month-over-month (m/m) in August, but this was driven almost entirely by a decline in multi-family apartments (20+ unit structures). 
 

Source: FRED.

Source: FRED.

Source: FRED.

Source: FRED.

Source: FRED.

Source: FRED.

Coming out of the last recession, multi-family construction has been growing at a faster rate than single family.  This was initially driven by the housing crisis and excess inventory in single family units.  Over time, there was an increase in demand for multi-family units, primarily in downtown/urban locations. 

Source: FRED.

Recently, this has started to shift, and single-family activity is outpacing multi-family.  This could be a sign that consumer preferences are shifting and that buyers are moving back toward single unit, suburban locations. 

There are also some regional trends developing in the underlying housing data.  Multi-family activity is weak across the country, showing that this could potentially be a broad trend away from this property type.

Source: FRED.

Single family activity was initially very strong in the Northeast, likely driven by a move away from New York City and other large metro areas.  That has reversed in the summer, as many people that were going to move out of the city have likely already moved.  Recently, the Midwest has started to experience an increase and activity is back to levels last seen in the mid-2000s.  The migration to the South has been strong but the pace has recently slowed.  Activity in the West region is similar to the Northeast.  This could be the result of people moving from the city centers.  Activity in the future may slow as that group may have already moved.  The forest fires may also end up limiting activity in the next few months. 

Source: FRED.

The long-term implications of people moving from multi-family, urban locations into single family suburban homes is wide ranging.  It could potentially impact the financial health of cities that are reliant on income and property taxes, election outcomes as the voter bases change, and where companies/jobs locate based on worker preferences. 

There are some indicators that help determine how long this housing shift will likely last.  The most leading indicator is weekly mortgage purchase applications.  Activity is still elevated compared to last year but has leveled off over the last few months.  This could be a sign that single family activity will likely begin to slow in the 4th quarter. 

Source Hedgeye.

We will continue to monitor trends in the housing market and watch for signs that these shifts are starting to impact other economic variables. 

 

Rank Dawson, CFA
Vice President, Research and Strategy

Boyd Watterson Asset Management, LLC

 

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.