Single-Family Unit Housing Permits is a useful leading indicator of what will be happening in Single-Family Housing Starts, which is of course important to contractors, lumber yards, appliance sales, carpet sales, and a whole host of other products and services related to the housing industry. The clear signal coming from Permits is that Housing Starts, and by extension about 14% of GDP, is headed toward an imminent slowing rate of rise.
The decline in the 3/12 rate-of-change in Single-Family Housing Permits is that clear signal. The Permits 3/12 leads the Housing Starts 12/12 rate-of-change through peaks by six months. The correlation is very impressive and hard to dispute. The November 2017 economic high in the Permits 3/12 places the 12/12 cyclical high for single family Housing Starts in May 2018. Further decline in the 3/12 and 12/12 rates-of-change for Permits are anticipated. This outlook is bolstered by the fact that the seasonal rise in Permits since February is the mildest since 2008, and about matches 2011. Both years saw decline in the Permits 12-month moving total. We are not projecting that Permits, currently at a 10-year high, will shift into decline. However, a decidedly milder rate of rise is indicated, with further decline ahead in the 3/12 rate-of-change. Industry participants should plan for a slower-growth environment in the latter half of this year and into 2019.
The softening in Permits and Starts is perhaps a demand function as the average price of a home actually sold plunged in the first quarter of the year from a record high $399,700 to $374,700 (3-month moving total). A first-quarter decline is normal, but this year’s drop is the steepest since 2009 (the Great Recession). The change could be related to negotiated lower pricing or it could reflect the millennials shifting into the market place at a lower price point than seen recently because they are “first home” buyers. The rates-of-change are signaling more downward pressure on prices. The 12-month moving total established a tentative peak in December 2017. It would be normal for the price decline to extend into 2019. A typical length of decline puts the price low (on an annual average basis) in Mar 2020. All real estate is local, but in general, now does not appear to be a great time to sell your house. Buyers, on the other hand, should get ready to negotiate lower prices.
Alan Beaulieu
President