US Housing – a look through at the key drivers

QMG data provides a positive read on the current state of the US housing market. Although recent activity data has been mixed – housing starts below expectations in each of past two months, but existing home sales better – the positive volume growth highlighted by QMG data is a theme that investors should take an interest in. Indeed, chart 1 shows that our most recent observations indicate volume growth across the industry of 23% yoy, which is the strongest level since June 2013.

In addition, housing permits – a key lead indicator of future activity remain strong at the 1m+ level and we would also highlight the following factors as further support for an improving backdrop over the course of this year and into 2016:

QMG Price, Cost, Volumes – Residential Construction – US45.21/2

Chart1

 

1. Demand remains strong, driven by demographic trends

Net household formation is increasing. Simply put, the number of new migrants coming into the USA and new households formed out of divorce are creating more demand for housing accommodation. In addition, another positive influence is that workforce mobility has become an increasing prerequisite – or preference – in an improving labour market. As shown in the chart below, the level of household formation since 2014 has been running at 1.5-2.0x the level of housing starts.

 

Chart2

 

 

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