A month ago when housing starts and permits were reported, I wrote: Psst: Is this the beginning of the end of the housing bust? With this morning's report of 681,000 permits issued, I believe we can affirmatively answer, YES.
As I said last month, housing construction is a long leading indicator, indeed along with interest rates probably the most important one. So those commentators who say that we won't get housing improvement until we have job improvement have causation exactly backwards. Rather, it is much more likely that we won't get more meaningful job improvement until we have more meaningful housing improvement. Further, the decline in housing starts and permits after the expiration of the $8000 housing credit was probably an important factor in the slowdown in GDP earlier this year, and as I wrote last week, probably plays a role in ECRI's recession call.
This morning's report of 681,000 housing permits is with the exception of the month when the $8000 housing credit ended, the highest in 3 years [note: the St. Louis FRED hasn't updated its graphs yet, so the 4 graphs below do not include today's report]:
In the past it has typically taken an improvement of 200,000 housing starts from the bottom to signal that a housing-led expansion has begun:
With November's report we are 85% of the way there from the March 2009 bottom of 513,000.
Another way of looking at housing and expansions is to measure the YoY improvement in the raw numbers. Typically in expansions there have been sustained periods of 200,000+ growth YoY:
With today's number we are 60% of the way there, for the first time without help from the housing credit:
Additionally, per Bill McBride a/k/a Calculated Risk, there is a strong leading relationship between housing starts and the unemployment rate, so a confirmed uptrend should mean a reduction in the unemployment rate.
While by no means are we at the end of the housing bust, today's number serves as confirmation that we are at least at the beginning of the end.
2 comments:
i think you're right... provided we continue to run large federal fiscal deficits to supplement private sector income, enabling households to pay down debt out of cash flow without creating a deflationary spiral.
this is a similar situation as was seen in japan circa 1996 -- a few years of bust took all the bubble froth out and cut property prices enough to turn investing into a significant cash-flow positive under ZIRP finance, bringing in lots of international investment.
but the subsequent deficit-cutting austerity program of the Hashimoto government put the still-deleveraging private sector back into recession, hitting household cash flows hard and therefore wrecking the nascent real estate market stabilization. japanese commerical property prices proceeded to fall another 53% from 1997 to 2003, residential property somewhat less.
maintaining aggregate cash flows with government deficit spending will remain essential to any housing recovery, imo.
Did you read the part about the housing permits NOT being individuals wanting to build a home, but developers wanting to build multi-family rental units? Significance?
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