Housing Permits Increase at Second Fastest Rate of 2014

According to the Census Bureau, there were 97,100 housing permits filed in July 2014. This was an increase of 10.2% compared to one year ago. In three of the last months, housing permits have increased more than 10% compared to one year ago. The annual rate of change continues to show decelerating growth. Housing permits are growing at their slowest annual rate 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. Then, it appears that the trend in real interest rates will be supportive of accelerating growth in housing permits through the early part of 2016.

However, if the nominal rate rises (the Fed has hinted that this will happen sooner than some expect) this could dramatically change the trend in the housing market. Also, the Fed has stated that it will end quantitative easing, which could cause interest rates to rise.

We use housing permits as an early leading indicator for the following industries: appliances; custom processors; furniture; hardware; HVAC; off-road/construction machinery; petrochemical processors; plastics; plastic/rubber products; pumps/valves/plumbing products; textiles/cloting/leather goods; and wood/paper products.