Tuesday, September 21, 2021

August housing construction shows stabilization, following interest rate moderation


 - by New Deal democrat

This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction.

Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways:

Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:

Normally I show the changes in mortgage interest rates YoY and compare them with housing construction. This month let me show you the raw mortgage interest rate number (gold), left scale vs. the absolute number of single family permits (right scale):

As mortgage rates declined from 3.7% to 2.7% throughout 2020, single family housing permits increased over 30% from roughly 950,000 annualized to 1,270,000. After the increase early this year in mortgage rates to 3.2%, housing cooled, but in the past 4 months rates have settled in the 2.85%-3.0% range, and housing can be expected to resume a moderate increasing trend in response. This in turn suggests that the economy, which tends to follow housing with a 1 year+ lag, after a period of cooling early next year, will also stabilize later on.