Trend In Housing Permits And Starts Turns More Negative

Oct. 17, 2018 2:29 PM ETIYR, RQI, SCHH, RNP, RFI, ITB, NAIL, HOML, XHB2 Comments
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New Deal Democrat


  • Housing permits in particular are an important long leading indicator.
  • All forms of permits and starts made peaks between 6 and 8 months ago.
  • Total permits and starts are both sufficiently lower for a sufficiently long period of time from their peaks to warrant downgrades.


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.

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. It is clear, for example, the demographics has an important effect. But 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.

2 months ago, I summarized the state of the housing market as having turned slightly negative, with housing starts and permits the sole remaining weak positives.

Last month they too went negative, in what I called probably the most significant single housing report in the last 6 years. This month's report for September continued the negativity.

Permits turn negative

Because permits tend to follow mortgage rates with a lag time of about 6 months, and mortgage rates had increased over that time, I wrote that the issuance of permits should stagnate.

With that in mind, here's an update graph of mortgage rates (inverted) and permits (red/10 for scale) for the last 6 years, showing the relationship:

There were some significant revisions of recent data, but the negative trend remains intact. Here's the bullet-point version as shown on the graph below:

  • Single-family permits (red, right scale) did improve month over month are up +2.4% above last September's easy

This article was written by

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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