November housing permits and starts: the biggest news is not in the headlines

by a New Deal Democrat

November’s housing report was largely a tale of two very different trends — and the most important one will almost certainly be underreported.

Housing permits issued fell to 1.342 million year-over-year, the lowest number since June 2020 and the pre-pandemic lowest since July 2019. Even more reliable, single-family permits fell to 781,000 year-over-year, the most the low number since May 2020 and November 2016 before that! Finally, more volatile housing starts fell to 1.427 million year-over-year, the lowest level since August 2020. Here’s the chart showing all three:

These are all big declines and definitely a recession. But they are not the biggest story.

On the one hand, the backlog of permitted but not yet started housing units eased slightly to 293,000, just slightly below its peak in March:

This is most likely heavily influenced by cancellations, which have jumped in recent months.

But the big story, I think, has to do with the metric that measures actual economic activity in the housing sector; namely housing under construction. That remained at 1.709 million, tied with last month and at its peak. In the chart below, I also show the number of residential construction workers from the recent jobs report:

In other words, in terms of actual economic activity, housing is still not contributing to the downturn. As units under construction and the number of construction workers tend to move in tandem, keep in mind that employment has not yet eased.

There was some movement as single-family units under construction fell to 777,000, an 11-month low, while multi-home construction rose to a new high:

This reflects buyers being displaced from the single family market.

Finally, note that mortgage rates have fallen significantly over the past eight weeks:

If this continues, we may see a bottom in housing permits in the next few months, which of course would be good news for 2024.

But, to reiterate, despite the big drops in the headline numbers, real economic activity in housing construction remains at its peak.

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