January was a tough month in the housing industry, both in terms of new construction and sales of existing homes. The decline in the Housing Starts annual year-over-year comparison (12/12 rate-of-change) is a clear leading indicator that not only the housing industry is slowing now, but that the entire economy is likely to slow in the second half of the year. Admittedly, the polar vortex may have contributed to steeper-than-normal December-to-January decline of 14.96%.
The sharpness of the January 2014 decline is very close to the January declines in 2007 and 2009; very chilling memories for industry participants. We will likely see more decline in the year-over-year comparisons in the coming months, even with warmer weather around the corner. A typical February followed by a strong (but still normal) March will see the year-over-year comparisons continue to move lower. Even normal activity in the last three quarters of the year will see the year-over-year comparisons drift lower. Builders, distributors, and all industry sectors tied to new construction should plan on slower growth in the coming quarters.
Existing Home Sales fell a sharp 5.1% from December to January 2014 as mortgage rates, higher prices, and lending requirements converged to produce the worst January since 2009. The softness did not begin in January, but the magnitude of the drop highlights the problem. Warmer weather is not likely to help, at least not in the short term. Assuming the upper-end of normal behavior in February and in March, the quarterly year-over-year comparison will be a negative 4.0% in March and the annual comparison will descend to 5.3%. Existing Home Sales are providing another signal that the macro environment is softening.