Housing Starts Weaken as Market's Foundation Appears to Sink Further
It's getting so bad that Sherwin-Williams just suspended 401(k) matching due to weak housing demand.
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Rounding out this week’s pre-Fed policy meeting economic data, August housing starts fell 8.5% sequentially and 6.0% year over year to 1.307 million on a seasonally adjusted annual rate, missing the 1.37 million market forecast. The August figure is the fourth-lowest reading since May 2020 and underscores the weak housing demand picture we’ve discussed.
That picture becomes clear when we look at the number of single-family new privately owned housing units completed, which hit 1.090 million in August. That’s the highest in the last year and suggests we are likely to hear builders using incentives to move housing stock when they report their quarterly earnings in the coming weeks. It also suggests margin and earnings per share pressure.
Given those figures, it shouldn’t come as a surprise that August building permits, which hit 1.312 million, were the lowest since May 2020. That also signals a slower housing market ahead.
In thinking about this on current quarter gross domestic product expectations, we should see the August Housing Starts data lead the Atlanta Fed’s GDPNow model lower after being revised up to 3.4% after yesterday’s rash of economic data. We’ll keep an eye out for the revision, but unless it collapses the GDP figure for this quarter, based on the data received so far, the economy does not warrant a “go big” rate cut by the Fed this afternoon. But if we get one, we will want to be mindful of Powell’s tone and the overall number of telegraphed rate cuts by the end of 2026.
Sherwin-Williams cuts 401(k) contributions
Yesterday, we discussed the slashed earnings before interest, taxes, depreciation and amortization. guidance served up by Boise Cascade (BCC) as another indicator of weak housing demand. Today, we’re adding paint and coatings company Sherwin-Williams SHW, announcing it will temporarily suspend its matching contributions to employee 401(k) plans due to weakening housing demand and inflation reducing do-it-yourself (DIY) demand. The company also commented that tariff policies have dented industrial demand and raised costs for the company.
We see the above as another reason to be mindful of housing demand dynamics even as we head into the Fed’s policy meeting. As we discussed in today’s Portfolio video, our focus will be on the total number of rate cuts the central bank telegraphs for this year and next. We doubt the Fed will signal six rate cuts by the end of 2026, including today’s widely expected quarter-point rate cut. Should we see housing demand bottom and other indicators we are tracking, like key commodity prices, perk up, we would be game to revisit a housing play for the Portfolio.
The Pro Portfolio has no position in any security mentioned.
