Rising Mortgage Rates Haven't Brought Housing To The Tipping Point - Yet

New Deal Democrat profile picture
New Deal Democrat


  • Trends in the housing market tend to follow a fixed sequence.
  • That sequence is: interest rates, sales, prices, and lastly inventory.
  • The least volatile sales indicator is single family permits.
  • Today's data, with a significant uptick in single family permits, shows that , while rising interest rates are pressuring sales, sales haven't reached the tipping point yet.


One of the my main focuses is "long leading indicators," that is, economic data which usually turns a year or more before the economy as a whole turns. Perhaps the single one of those I have most often discussed is housing. Housing is somewhat unique among those indicators. There are others that focus on the financial sector, on producers, and on consumption. But housing is at the intersection of all three: production via house-building, consumption via the huge consumer spending on everything housing-related, and finance via mortgages.

Over the last year, the big question has been how increased interest rates and ever-escalating prices may finally be taking a bite out of the market. In order to examine this, and to put this morning's report on housing permits and starts in context, let me first step back and give you a "big picture" look at housing data - because there is a pattern to the order in which housing trends change.

The typical sequence of changes of trend in the housing market

That order is as follows:

  • interest rates lead sales
  • sales lead prices
  • prices lead inventory

I don't mean to suggest that the above sequence is inviolable, nor that causation is singular. As I have pointed out in the past, even if prices that are "too high" cause sales to slump, sales will turn first, even as prices rise for a while. That's because it takes a little while for sellers to get the message. Similarly, it is very clear that demographics can have a profound effect - in the case of the last 8 years, a significant tailwind of the large Millennial generation reaching their 30s. So, to show the sequence I laid out above, let's start with interest rates (inverted, blue) and sales, as measured by single family permits (red):

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New Deal Democrat profile picture
New Deal democrat As a professional who started an individual investor for almost 30 yeas ago, I quickly focused on economic cycles and the order in which they typically proceed. I have been writing about the economy for nearly 15 of those years, developing several alternate systems that include mid-cycle, long leading, short leading, coincident, lagging and long lagging indicators. I also focus particularly on their effects on average working and middle class Americans.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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