- by New Deal democrat
This morning’s report on housing construction may be the last decent one for quite awhile. Let’s wistfully take a look.
I’ve been writing for most of this year that housing did not look like it was heading towards a recession, but was most consistent with coming out of one. Although on a monthly basis, the main metrics declined, they continued that trend. Housing starts (blue) declined -2.7% for the month to 1.394 annualized, while the less volatile and slightly more leading permits (gold) declined -2.6% to 1.275 million. The least volatile metric of all, single family permits (red, right scale) declined -1.8% to 878,000:
As you can see, all three metrics have been trending essentially sideways since the summer of last year. For the record, on a YoY basis, while starts are down slightly by -3.5%, permits are higher by +3.5%, and single family permits by +1.3%:
Although I won’t bother with the long term historical graph this month, in the past these three have generally been down -10% or more YoY to be consistent with the onset of a recession.
Additionally, the “last shoe to drop” in this series, housing units under construction, increased by 4,000 annualized to 1.267 million units:
As you can see, this series has been essentially flat as well since the beginning of this year.
Why is that noteworthy? Because as this long term historical graph shows, when units under construction stop declining, typically an economic recovery is beginning or has already begun:
The same shows up in the YoY comparison graph:
On a YoY basis, units under construction are only down -3.2%, which in the past has almost always meant that the economy is months into a new expansion.
Which, if it weren’t for rising interest rates and a potential oil price spike, would all be good news.
But of course interest rates have been increasing, and sharply this past week. The below graph of mortgage rates through last week (blue) shows them well below 7%:
But as of today, Mortgage News Daily (not shown) shows them at 7.24%, which is higher than any spike in the past five years except for late 2023. As the graph immediately above shows, that (noisily) led to roughly a -10% decline in permits issued (gold, right scale) over the next few months.
Let me close by putting this in my 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. As of now, the latter two are still very positive, but it is certainly not good for the economy over the next 12 to 24 months if housing is about to begin a renewed downturn.
