Last November, I noted that within the housing sector, the progression tends to be:
1. New home sales peak (6 of the last 8 expansions, a weak but noteworthy relationship)
2. Permits for single-family houses peak
3. Permits for all houses peak (very slightly after #2)
4. Permits for multi-unit construction peak
New home sales frequently peak so early that they are more of a mid-cycle rather than long leading indicator! Since apartments and condos tend to be replacement goods when potential buyers cannot buy single family homes, they peak last, as the market comes under more stress late in the cycle. Since there are only 8 cycles, the correlation is weak, but still worth using.
So with yesterday's report on new home sales, let's take a look where this progression stands:
Because housing permits were distorted last May and June by the expiration of an NYC program, here is the same comparison excluding New York:
The bad news about new home sales is that they have not made a new high for a full year. The good news is (although I can't show it using FRED) that as a 3-month rolling average, new home sales are only behind the December 2014-February 2015 period. In other words, they have improved recently.
Now let's compare them with single-family permits (red) and multi-unit permits (green):
The first thing to point out is that multi-unit permits were the epicenter of the NYC housing program that expired last June. Thus, the May-June spike last year should be somewhat discounted. Beyond that, as hopefully you can see, multi-unit permits have improved vis-a-vis single-family permits in the last several years.
Another way to show that is to look at the ratio of single family to multi-unit permits. Here is the long-term view:
With one exception (the 1980s), this ratio has declined as the expansionary cycle goes on. This suggests, with the exception of last May-June, the peak in multi-unit permits is still ahead of us.
The overall view is that the housing market is getting late in its cycle, with new home sales probably having peaked, and total permits and single family permits approaching or just past their peak, while multi-unit permits have a ways to go. The best case is that the recent decline in mortgage rates ignites some further buying, extending the cycle.