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August housing construction shows stabilization, following interest rate moderation

Summary:
August housing construction shows stabilization, following interest rate moderation This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction. Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single-family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways: Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:

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August housing construction shows stabilization, following interest rate moderation

This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction.


Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single-family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways:


August housing construction shows stabilization, following interest rate moderation

Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:


August housing construction shows stabilization, following interest rate moderation

Normally I show the changes in mortgage interest rates YoY and compare them with housing construction. This month let me show you the raw mortgage interest rate number (gold), left scale vs. the absolute number of single-family permits (right scale):

August housing construction shows stabilization, following interest rate moderation

As mortgage rates declined from 3.7% to 2.7% throughout 2020, single-family housing permits increased over 30% from roughly 950,000 annualized to 1,270,000. After the increase early this year in mortgage rates to 3.2%, housing cooled, but in the past 4 months rates have settled in the 2.85%-3.0% range, and housing can be expected to resume a moderate increasing trend in response. This in turn suggests that the economy, which tends to follow housing with a 1 year+ lag, after a period of cooling early next year, will also stabilize later on.

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