In the image below, red represents a single-family permit and blue represents a five-unit permit. There’s a big gap between permits for a single-family home and five-unit homes, and permits for single-family homes are getting softer right now.
This is important for economic cycles because construction workers tend to lose their jobs before a full-blown recession. This has not happened yet, as the backlog of condominium units takes 21 months to start and complete, allowing the workforce to be employed. However, in the future, once these units are completed, the workforce is at risk and licenses have been reduced and eventually there are no other jobs waiting for them. The workforce would also be at risk if single-family housing permits began to decline significantly.
from census: Building Permit: The number of private housing units issued with building permits rose to a seasonally adjusted annual rate of 1,440,000 units in April. This is 3.0% lower than March’s revised growth rate of 1,485,000 and 2.0% lower than April 2023’s growth rate of 1,470,000. Single-family home authorizations were 976,000 in April; this was 0.8% lower than March’s revised number of 984,000. In April, the unit authorization rate in buildings with five or more units was 408,000.
As the chart below shows, our housing permits are not overheating.this United States Federal Reserve A cat-and-mouse game is being played with interest rates to try to cool inflation without sending the U.S. into a jobless recession, but housing permit data will be tricky.
New house construction started: Private housing starts came in at a seasonally adjusted annualized rate of 1,360,000 units in April. This is 5.7% (±11.0%)* higher than the revised estimate of 1,287,000 in March, but 0.6% (±12.3%)* lower than the 1,368,000 in April 2023*. Single-family housing starts were 1,031,000 units in April; this was 0.4% (±9.5%) lower than March’s revised number of 1,035,000 units*. The unit rate for buildings with five or more units was 322,000 units in April.
Like permits, housing starts don’t do much. If single-family and 5-unit permitting data continue to decline, future housing production and the workforce associated with it will face greater downside risks.
As you can see above, we now have two aspects of housing permits: single-family homes and five units. If it weren’t for the massive backlog and builders lowering mortgage rates to sell more new homes, we would be producing less homes today. However, builders have been doing the job as long as mortgage rates haven’t been too high.
Recently, we have seen a decline in builder confidence. The index favors smaller builders because they don’t have the cash levels of larger builders to pay mortgage rates, so you can understand why the index is down again now since mortgage rates were above 7% at the time of this survey.
Will recent measures to lower mortgage rates help builders? That is, of course, if interest rates continue to fall. Not all homebuilders have the extra profit margin to buy discounts, so based on all the data we have today, we’re getting to the point where we’re losing building permits for single-family homes and apartments.
As you can see, housing data is declining faster than the overall economy. This has been true of every recession we’ve seen since World War II, so when people say housing led us into and out of recessions, this is what they’re talking about.
