FREIGHTWAVES’ SONAR CHART OF THE WEEK (Apr 28 – May 4, 2019)
Chart of the Week: Home Purchase Sentiment Index (USA) vs. Single Family Housing Starts (USA) (SONAR: HPSI.USA, SFAM.USA)
Consumer sentiment is as strong as it has been since early 2018, while single family housing starts remain soft. (IMAGE: SONAR HPSI.USA, SFAM.USA )
“Supply always comes on the heels of demand” – Robert Collier.
Supply, demand and perspective. The Home Purchase Sentiment Index released by Fannie Mae paints a picture of the demand for the U.S. consumer, while Single-Family Housing Starts reveals more about what’s going on the supply side. There is a diverging movement with the most recent March data, so what perspective do we take in this scenario and what does it mean for transportation?
The Home Purchase Sentiment Index is a survey-based, forward-looking indicator with real-world implications. The national survey data is compiled every month and gauges consumers’ current outlook on the economy, how things will fare over the next 12 months, along with their perspective on buying and selling a home. The outcome is a single number index that is complementary to tangible results in the housing market and other areas of the economy such as consumer spending and the transportation of building materials throughout the country.
The recent uptick to 89.8 out of 100 in March suggests that U.S. consumers have an optimistic attitude towards the housing market. The heightened sentiment is a bright spot amid moderate results and a mixed landscape throughout the housing and construction sector. The rise in March is only one month and not indicative of a trend, but it is indeed a step in the right direction and the highest point the index has reached since June 2018. The increase suggests that there is pent-up demand spooling up. When consumers are feeling confident, it leads to more purchases. The downstream effect is beneficial to the freight industry as more goods move into and around the country. When people buy homes, they inevitably fill them up with new furniture and appliances.
Conversely, Single-Family Starts did not pick up traction during the first quarter of 2019. Housing starts have faced a host of issues throughout the year thus far. Zoning limitations, labor shortages and weather conditions have put a damper on construction projects breaking ground around the country. The lack of construction activity will also impede some flatbed transportation. However, the fate of Single-Family Housing Starts will come down to the U.S. consumer.
As of now, the climate remains stable for consumers. Stable employment conditions, wages and favorable mortgage rates put consumers in an environment that should facilitate increased home purchases, leading to more starts. The Home Purchase Sentiment Index outlined in the most recent release that 56 percent of consumers feel that it is a good time to buy a home and 90 percent report that they are not concerned about losing their job over the next 12 months. If these conditions hold, they will provide upward momentum in the second quarter and going forward. Increased activity for starts bodes well for flatbed activity as building materials get hauled to construction sites.
An essential aspect of this balancing act of supply and demand is matching the corresponding components. The conditions outlined earlier that are negatively impacting single-family housing starts are also making entry-level homes a bit more elusive. Developers are dealing with increases in land, labor and lumber costs that place upward pressure for homes at the lower end of the price range.
Looking at The Home Purchasing Sentiment Index alone, the perspective is of a potential boost in consumer optimism and demand for new homes. However, looking at real results for the first quarter results for Single-Family Housing Starts, there is a different perspective of supply that doesn’t match where demand is. It’s reasonable to expect a slight rebound for starts in the coming months as we get past weather events, and supply catches up to where demand is pointing. The freight industry wins on both sides when homes are breaking ground and when consumers are confidently filling them up with new furnishings. Nevertheless, it’s unlikely that demand will push starts to outpace levels seen in 2018 as a whole.
About Indices presented in this article
(SONAR: HPSI.USA, SFAM.USA) Home Purchase Sentiment Index – USA – Index developed by Fannie Mae measuring consumer attitude about purchasing a home. If the number is high consumers feel positively about the prospects of purchasing a home in the current month. It is derived from a multiple question survey and generally leads housing market production.
Single Family Housing Starts – USA – Number of single family housing units started in 1,000s in a month.
About Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week the Sultan of SONAR will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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