Economic News Blog
Posted by: Steven Kline, Jr. 7. August 2013

Housing Permits Still Growing But Cooling Down

According to the Census Bureau, there were 83,900 housing permits filed in June 2013. Housing permits grew at a rate of 13.7% compared to last May. While that is a strong rate of growth, the rate of growth is the second slowest rate of growth since December 2011. The annual rate of change is still hovering around 31.0% but has decelerated the last the two months. Even though the level of housing permits appears to have moved out of historical recession territory the annual rate of growth should continue to slow down throughout the remainder of 2013.

In the current environment of zero interest rates from the Federal Reserve, the real Fed funds rate is a good leading indicator of housing permits. The real Fed funds rate increased year over year from early 2012 to early 2013. In addition, since the Fed's announcement that it might taper its purchases of bonds, interest rates on treasuries and mortgages have jumped dramatically. Therefore, interest rates are indicating that the growth in housing permits should slow down dramatically over the next six to 12 months. After that period, housing permits may start growing faster again as the real Fed funds rate appears to declining year over year once again.

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 and rubber; pumps, valves and plumbing products; textiles, cloting and leather goods; and wood and paper products. In general, housing permits are a very good leading indicator for the production of plastic product.


 

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