- by New Deal democrat
Last month I started my report on housing construction by writing that “This morning’s report on housing construction may be the last decent one for quite awhile.” And it was.
Up until last month I had been writing that housing construction was most consistent with an economy coming out of a recession than going in to one. Needless to say, with the spike in mortgage rates, that is no longer the case. In September housing starts (blue) declined -5.2% to 1.221 annualized, while the less volatile and slightly more leading permits (gold) declined -0.2% to 1.400 million. The least volatile metric of all, single family permits (red, right scale) declined -4.0% to 845,000:
All three of these metrics had been trending essentially sideways since the summer of last year. As of this month, the YoY comparisons are now near the bottom of that range, with starts down -7.4%, permits by -3.0%, and single family permits by -4.8%:
This doesn’t mean housing is forecasting a recession yet. While I won’t bother with the graph this month, in the past these three metrics have generally been down -10% or more YoY to be consistent with the onset of a recession.
Now let’s update the “last shoe to drop” in this series, housing units under construction. This was unchanged on an annualized basis at 1.280 million units:
This series has been essentially flat - even rising slightly - as well since the beginning of this year, which is typical of an economic recovery that is beginning or has already begun:
Which, if it weren’t for rising mortgage interest rates would be good news.
So let’s close out with graph of mortgage rates (blue, inverted) on a monthly basis, showing that they rose to an average of 6.86% in September and 7.38% so far in October:
As the above graph shows, a similar increase in mortgage rates in late 2023 (noisily) led to roughly a -10% decline in permits issued (gold, right scale) over the next few months. With the further increase in mortgage rates this month, I expect further deterioration in new housing construction over the next several months as well.
One final note: from a forecasting perspective, the housing market, along with corporate profits and real retail sales per capita, is one of the three nonfinancial, or “real world” long leading indicators that is of added importance for whether the US economy continues in expansion or falls into recession. Despite the renewed downturn in housing, as of now, both of the other two are still very positive. So - barring particularly strong new lunacy from Washington - the inflationary expansion appears likely to continue over the near term.
