New housing construction appears to have bottomed out;  but expect further declines in construction employment

– by a New Deal Democrat

Over the past few months, I’ve noticed that new home sales, which while very volatile are often the first indicator to signal a change in trend, seem to have bottomed out early last fall. This morning’s report on housing permits and starts appeared to confirm that signal.

While total housing permits (the gold in the chart below) fell by -137,000 in a seasonally adjusted annual rate from last month, they remained up from their November-January lows of about 75,000. blue), which are noisier and tend to lag about a month, also fell -12,000 but remained 86,000 higher than their January low. Most importantly, single-family permits (red, right scale), the least volatile measure of the three, rose 32,000 for a second straight monthly increase and are now nearly 100,000 above their January low :

It is very likely that the bottom for the home sales market has occurred. Remember, sales follow interest rates, and in particular mortgage rates, which peaked in October and November of last year. Below is the most recent chart update comparing the year-over-year change in mortgage rates (blue, inverted, *10 for scale) to the year-over-year % change in both general and single-family permits :

This is all good news, despite monthly declines in total permits and starts.

One important bit of bad news is that the total number of housing units under construction has declined again (blue in the charts below) and is now -2.2% below its peak in October. As I’ve noted monthly for some time now, this is the metric that shows the actual overall economic activity in the housing market, so it shows that housing is now subtracting from GDP. Also, once construction declines, construction employment declines shortly thereafter (red). Here’s a historical look at the pandemic:

Here’s the latest year, with both metrics normalized to 100 to their peak months:

Nonfarm payrolls are the main matching indicator supporting the economy, and construction employment is one of the leading sectors of the overall labor market. This morning’s report tells us to expect further declines in this jobs sector.

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