I noted last week that housing data has become increasingly noisy, largely due to the sharp rise in activity last summer.  With that in mind, recent data has been coming in largely consistent with a slowdown or pause in housing and housing-related activity.  If this new data is correct (again, it is hard to tell if it is real or just data volatility) then the mini-boom that began around the middle of 2011 seems to have ended (or paused) right when QE 3 was announced – the Federal Reserve’s program for purchasing MBS.

Some of the data is downright surprising.  ZeroHedge noted that the Census Bureau’s estimation of home renovation spending has collapsed since Hurricane Sandy.  This was totally unexpected, highlighted by confusion at Bank of America:

“We have been quite puzzled with the recent data from the Census Bureau showing that spending on home improvements has declined sharply from November through March. Not only do we think the fundamentals dictate a gain in renovation spending, but some of the more granular data suggest a pickup.”

I’m not sure to what “granularity” they are referring, but additional data series from the Census Bureau have actually been quite consistent.  The data volatility has arisen not from inconsistency, but from the large increases in activity, particularly in the middle of 2012.

Private construction spending has tapered in both residential and nonresidential (government construction remains lower and falling) after a solid run through most of last year.  The inflection appears right around QE 3 and/or Hurricane Sandy.

ABOOK May 2013 Housing Construction

The decline in nonresidential activity is actually quite similar to home renovation spending.  The same also plateau shows up in new home permits, particularly multi-family:

ABOOK May 2013 Housing New Permits

I should note that each of these data series are seasonally adjusted, so it is entirely possible that adjustments are playing a role, but that would be contrary to recent trends in seasonality (adjustments have tended to make month-to-month changes look better).

We also need to be aware of the new process of building-for-rental and converting-for-rental, and that may be having a large role here (in either the data volatility or the inflection toward a new trend).  The Census Bureau also estimates that the homeownership rate in the US has dropped to levels last seen in the mid-1990’s, just after the first stage of the housing bubble (GSE takeover) took off.

ABOOK May 2013 Housing Home Ownership Rate

If this data is correct, then all that construction and new home activity from 2012 is either being built for sale at some later data (not likely) or being built for sale to “investors” that plan to flip or rent out.  If indeed the latter is driving new activity, then it would be very sensitive to the rental population’s ability to absorb rising rental costs.  As I noted in that previous post, real estate prices have increased along with construction activity, but household incomes have not.

So what this may mean in total is that the housing sector is more respondent to changes in household incomes and macro factors than monetary factors (such as interest rates and mortgage lending standards).  That makes the most sense, particularly when analyzed in the context of other economic data points.

Again, however, given the data volatility we should still avoid hard conclusions at this point.  It does possibly offer another piece to the “broken transmission mechanism” of monetary policy.  The benefits of this activity, if it is real, are/have been financial and thus accrue largely to banks and special purpose funding vehicles.  The drawbacks, like rising rental costs, are to be absorbed by households.  This is the bifurcated economy at work, another potential feature of intentional monetary imbalance.