– by a New Deal Democrat
This morning’s housing report contained both good and bad news.
First, the good news. Both permits (gold in the chart below) and starts (blue) increased, the former by 185,000 year-over-year, the latter by 129,000:
It is very possible that January’s rate of 1.339 million annualized permits and 1.321 starts will be the lowest for this cycle. That’s because mortgage rates (red, inverted), which along with Treasury yields often peak before the Fed finishes raising rates, may very well have done so for this cycle at 7.08% in late October and early November. They fell to 6.09% by early February. As usual, as permits and starts slow down interest rates, the decline in mortgage rates shows up in the increase in permits and starts in this report.
As I’ve noted many times before, single-family permits were the least volatile and most leading of the housing data, and they also increased by 55,000 to 777,000 year-over-year:
So much for the good news. The first bit of bad news is that the decline that has already occurred is still consistent with an impending recession.
The second, more important piece of bad news is that housing starts (red in the chart below) were revised lower for December and January and fell further in February. It is now -1.2% off its peak:
Since housing under construction is the “real” economic activity, this means that housing is finally putting downward pressure on the economy as a whole.
It’s still not that significant. Homes under construction typically dialed up over 10% before the recession hit. But this month’s report is confirmation that it has begun. Among other things, expect housing construction employment, which was still rising, albeit by a very small 1,200 jobs in February, to begin to decline over the next few months.