I have been waiting with increasing concern for the post-Brexit new lows in interest rates to ignite the housing market. Yesterday's housing starts and permits data shows that has finally happened.
To reiterate my mantra, interest rates lead housing permits and starts, with an assist from demographics. Since the prime demographic of those entering the housing market, ages 25-34, started to grow about 5 years ago, it has provided a little "wind beneath the wings" of the housing market. Thus, when the "taper tantrum" of 2013 caused interest rates to rise close to 2% at the worst, the housing market only went sideways in 2014 rather than declining.
Here is a graph of mortgage interest rates (blue, inverted, left scale) with single family housing permits (red, right scale):
Note that I am using single family permits because they are just as leading as permits overall, and avoid the distortions caused by the NYC housing program in spring 2015. The graph shows that housing permits stalled after the "taper tantrum" raised interest rates, and generally have slowly increased since as interest rates declined.
The second graph below shows this same information YoY:
This shows even more clearly that housing has responded to interest rates with generally a 6-9 month lag.
Here are single family new home sales through September, showing they made a new post-recession high in July:
Here are both housing starts and single family permits through October, showing that each has made new post-recession highs as well:
This bodes well for the economy next year.
What about the spike in interest rates since the US presidential election? We'll have to see if they persist or not. If they do persist or get worse, then that will feed through in a negative way into the housing market in the first half of next year.