Housing permits and starts for March laid an egg, failing to show any positive effect yet from the recent surge in purchase mortgage applications. Both total and single-family permits and starts declined month over month, and are down substantially from one year ago.
The March data is near recessionary
The single least volatile and most leading measure is single-family permits. They continued their almost relentless decline from one year ago:
They are now down -9% from their peak of exactly 12 months ago.
Total permits are down -7.8% from their peak, which was also one year ago. And starts, which are much more volatile on a monthly basis, are down -14.2% YoY, and 14.6% from their January 2018 peak. Measured on a 3-month rolling basis to smooth out the noise, housing starts are down -9.4% from their peak during the first quarter of last year:
Since a decline of -10% in either single-family permits or the 3-month average of starts is recessionary, this is just short of that mark, demonstrating how weak the economy is likely to be in the months going forward this year.
But this may be the bottom
But looking further out from that, it is clear that housing numbers are at least close to their bottom. Here’s a graph I have run many times over the last 6 years, comparing the YoY change in mortgage rates (blue, inverted) with the YoY% change in housing permits (red):
Mortgage rates are now lower than they were a year ago (which shows up as positive on the graph). Housing permits on a YoY basis turned up this month off a likely bottom in February. In other words, the YoY comparisons, while negative, are likely to improve from here, and if mortgage rates do not increase significantly in the next few months, housing is likely to turn positive before the end of the year.
To sum up, the long leading indicator of new housing construction has now declined to very close to recessionary levels. But it is not likely to decline much further, if at all, and should turn up in a few months if this was not the bottom right now.
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