Housing Permits Contract 4.1% From a Year Ago
According to the Census Bureau, there were 91,000 housing permits filed in May 2014. This was a decrease of 4.1% compared to one year ago. This is the first time the month-over-month change in housing permits has contracted since July 2011. And, it is the fastest rate of month-over-month contraction since April 2011. The annual rate of change continued its trend of decelerating growth, falling to 9.9%. This is the slowest rate of annual growth since February 2012.
The real Fed funds rate is a good leading indicator of housing permits. The year-over-year change in the real Fed funds rate has been trending down since April 2013. Because interest rates tend to lead housing permits by about 12 months, we should expect the annual rate of change in housing permits to bottom sometime in the second half of 2014.
A continued decline in the year-over-year change in real interest rates is a positive sign for the housing market. If the nominal rate and the inflation rate stay where they were in April, then the year-over-year change in the real Fed funds rate will continue to fall through the end of the year. This likely will provide a temporary boost to housing permits. However, if the nominal rate rises (the Fed has hinted that this will happen sooner than some expect) or the rate of inflation falls back down, then the year-over-year change change in the real Fed funds rate will go lower for only another couple of months.
We use housing permits as an early leading indicator for the following industries: appliances; custom processors; furniture; hardware; HVAC; off-road and construction machinery; petrochemical processors; plastics; plastics and rubber; pumps, valves and plumbing products; textiles, cloting and leather goods; and wood and paper products.
blog comments powered by Disqus