– by a New Deal Democrat
Home building is perhaps the single most important method by which the Federal Reserve seeks to translate its interest rate policy into effects on the economy.
To be frank, the Fed’s attempt at one of the most aggressive rate hike campaigns in history appears to be on the verge of failure. That’s because housing, more than a year after the start of the Fed’s campaign, has not cooperated meaningfully.
Let’s get to the numbers. . .
In April, housing starts rose 30,000 year-over-year to 1.401 million. Permits fell by -21,000 to 1.416 million, and single-family permits, the least volatile of the leading indicators, rose by 26,000 to 855,000. These were 87,000, 76,000 and 107,000 units, respectively. higher than their January lows:
This is not surprising as mortgage rates peaked at just over 7% at the end of November. Below is an update to the graph I’ve been running for over a decade showing year-over-year changes in mortgage rates (inverted, *10 for scale), total permits, and single-family permits:
I wrote last month that the bottom appeared to be in place, and today’s report gives us further confirmation of the same.
But perhaps the biggest news is what happened to all the units under construction. They are *up* by 7,000 and are only -2% off their peak half a year ago. While single-family units under construction did decline by -10,000, this was more than offset by a continued 16,000 increase in multi-family units under construction:
959,000 multifamily units under construction is a new all-time high.
The Fed is raising interest rates to reduce its preferred inflation benchmark to 2% annually. I’ve been pointing out for months that the only major sector that hasn’t plummeted to that figure is shelter. The total number of homes under construction just -2% below its all-time high is not creating a significant drop in home prices, and so far home prices as measured by both Case-Shiller and the FHFA (not shown) have only -5% and less than -1% from their all-time highs.