Could Housing Construction Momentum Take a Hit?

Each monthly LegalShield Law Index tracks factors such as housing starts, foreclosure starts, and consumer confidence, compiling indices based on LegalShield’s proprietary data culled from their client base. The Law Index is divided up into sub-indices that track different sectors of the economy, each tied to other key economic reports or indicators.

The latest LegalShield Housing Activity Index, a leading indicator of housing starts, was up 4.3 percent year-over-year in February, which bodes well for housing construction momentum. “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 percent on the year, and new housing unit authorizations, which were nearly 11 percent 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."

LegalShield’s Consumer Financial Stress Index remained flat in February, and at historic lows for the Index. For comparison’s sake, the Conference Board's Consumer Confidence Index improved by 6.5 points in February, hitting a score of 130.8. LegalShield suggests this increase could reflect tax decreases spurred by the recent tax reform legislation. However, since LegalShield’s data is “based on actual consumer behavior rather than perception,” LegalShield cautions 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," said Rosseau. "Nevertheless, LegalShield data point to continued low consumer financial stress for the first half of the year."

The LegalShield Real Estate Index declined 2.0 points in February to 98.3, which puts it 4.7 percent since early 2017. This parallels a 4.7 percent drop in existing home sales during that same period, likely reflective of continuing challenges presented by limited housing inventory that can’t keep pace with demand. LegalShield cites data from the National Association of Realtors, which shows that pending home sales are at their lowest level in three years, while prices for existing homes have spiked six percent over 12 months—again, likely the result of inventory shortages.

"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.