The LegalShield Housing Activity Index, a leading indicator of housing starts, is up 4.3% compared to a year ago, suggesting that housing construction momentum is building.
According to the ADA, Oklahoma-based LegalShield, the gains in the Index over the last 12 months reflect a similar movement in housing starts, which have risen more than 7% over the same period. Residential investment grew a seasonally adjusted 13% (annualized) in the fourth quarter of 2017, the strongest quarterly growth in nearly two years. This suggests that builders may have begun to overcome some of the headwinds they faced last year, including labor shortages and the high cost of building materials.
“Two indications that housing may pick up in 2018 are the recent rise in housing permits, which are a leading indicator of housing starts and are up 7.4% on the year, and new housing unit authorizations, which were nearly 11% above year-ago levels in January,” explained James Rosseau, LegalShield’s chief commercial officer. “However, the potential for new trade restrictions could increase the price of key materials, such as lumber, steel, and aluminum, and that could lead to weaker construction investment. This is a development that should be closely monitored in the weeks and months ahead.”
The Housing Activity Index is a component of the LegalShield Law Index, which reflects the demand for legal services among the company’s dedicated law firms in all 50 states. The Law Index is a suite of leading indicators of the economic and financial status of U.S. households and small businesses. The LegalShield Law Index also includes the Consumer Financial Stress Index, Real Estate Index, Bankruptcy Index, and the Foreclosure Index.
LegalShield’s Consumer Financial Stress Index was unchanged in February and remains near historical lows. Meanwhile, the Conference Board’s Consumer Confidence Index improved by 6.5 points in February to 130.8 (its highest level since 2000), likely driven in part by the recent reduction of federal tax rates on business and households. Though LegalShield data—which is based on actual consumer behavior (demand for legal services) rather than perception—indicate that consumer financial health remains quite strong, the data also suggest that consumer confidence may be overstated relative to underlying economic fundamentals.
“We are concerned about worrisome trends, such as elevated consumer debt levels and a 12-year low in the personal savings rate,” Rosseau went on. “Nevertheless, LegalShield data point to continued low consumer financial stress for the first half of the year.”
In February the LegalShield Real Estate Index declined (worsened) 2.0 points to 98.3 and is down 4.7% since early 2017. Indeed, existing home sales are also down 4.7% over the same period, reflecting the extremely tight supply of homes for sale. Overall, demand for homes remains robust, as evidenced by survey data from the National Association of Realtors (NAR) that shows an overwhelming majority of non-homeowners wish to own a home in the future. However, NAR also finds that pending home sales are at their lowest level in over three years, and prices for existing homes have risen nearly 6% over the last 12 months in part because of falling inventories. At the same time, mortgage rates are steadily climbing, and the average interest rate on a 30-year fixed-rate mortgage is now at its highest level in four years.
“Overall, these effects point to flat growth in existing home sales over the next two to three months, though sales may improve later this year if housing starts continue to rise, as expected,” Rosseau said.
