Economic News Blog
Posted by: Steven Kline, Jr. 26. August 2013

Housing Permits Growing But Slowdown Coming?

According to the Census Bureau, there were 88,100 housing permits filed in July 2013. Housing permits grew at a rate of 22.2% compared to last June. That is strong rate of month-over-month, but is the third slowest rate of growth since December 2011. The annual rate of change has fallen to 28.9%, decelerating from its peak rate of growth in January 2013. Housing permits are significantly up from the bottom in 2009 through 2011, but they are still within the range of the three previous housing recessions.

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 has been trending down year over year, but the trend is just a few months old. 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. 

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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