Tuesday, October 03, 2017

Merrill: "The hurricanes and housing"

by Calculated Risk on 10/03/2017 11:54:00 AM

A few excerpts from a research piece by Merrill Lynch economist Michelle Meyer: The hurricanes and housing

The housing market this year has shown stronger-than-expected home price appreciation but weaker home sales and construction. An increase in prices despite tepid sales is indicative of a housing market with restrictive supply. The data support this theory with low levels of months supply and fast turnover of the housing stock. However, the narrative has become more complicated of late, in part due to the impact of Hurricanes Harvey and Irma.

The recent home sales data have received attention given that existing home sales have declined for the past three months while new home sales have fallen sharply over the prior two months. This follows a generally weak trend which began in the spring, after the strong showing in 1Q. We suspect this is partly a weather story as the unseasonably warm temperatures this winter pulled forward activity from the spring and summer. Looking ahead, Hurricanes Harvey and Irma threaten to continue to weigh on activity. Texas and Florida are particularly important states when it comes to housing activity – nearly 25% of housing starts in the nation are in those two states. The risk is that starts and sales remain weak in the coming months before rebounding as rebuilding efforts get underway.

We are revising our forecasts for home sales to reflect the latest data and impact from the hurricanes. We now look for existing home sales of 5.475 million this year which marks a meager increase of 0.6% from last year. We look for a stronger recovery next year with sales up nearly 1.5% to 5.55 million. Similarly, we took down our new home sales forecast to 595,000 this year, which is an increase of 6%, and look for 650,000 next year.
emphasis added
CR Note: This is a key point: With the heavy concentration of starts and new home sales in Texas and Florida, the data will probably be weak, due to the hurricanes, over the next few months.