Tuesday, September 4, 2018

July residential construction spending: pause or peak?

 - by New Deal democrat

While the ISM manufacturing index came in very hot this morning (I'll wait for graphs to update before I discuss in any detail), residential construction spending continued its recent flatness.

To recap, while construction spending lags housing sales, permits, and starts, it has the virtue of being the least noisy of any housing metric, and it still does lead the economy as a whole.  Here's what it looks like (blue) through July compared with single family housing permits (red):

Its reading in July, while up from June, was below that for February, April, and May.

Here are the same two metrics as YoY% changes, starting from midyear 2014:

It is apparent that the rate of growth of both is still positive, but has very much decelerated.  In fact, the YoY% growth in residential construction spending is the lowest in 6 years.

Residential construction is consistent with both a pause in housing growth, and a cyclical peak. House prices are likely to continue to rise, putting more pressure on housing. So the big question is, what happens to mortgage rates in the next few months?