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By New_Deal_democrat September 21, 2017 12:16 pm
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August housing permits and starts: restrain your enthusiasm (part 2 of 2)

This is the conclusion of my examination of housing permits and starts for August.  Yesterday I noted that the good news in overall permits was not confirmed by the less volatile but equally leading single family permits, was not confirmed by starts, and was not confirmed when we remove the hurricane-affected South (where, paradoxically, builders may have accelerated taking out permits before the storms, as the relevant offices were likely to be disrupted for weeks afterward).

I wanted to follow up with one final note:  in the past I have noted that single family permits typically peak before multi-family permits. This is because the latter are something of a "substitution good" when the former get too expensive, as in the 1960s, 1980s, and 2000s: 

Once again, it is looking like single family permits may be leading multi-family permits now:

So part of the spike in multi-family permits in both the South and the West may be this dynamic of lower-priced substitution playing out.

While there are no regional breakdowns of new home prices, there is a breakdown by Census regions in the report on existing home sales, which was released yesterday. Note how much higher median prices are in the Western region:

All else being equal, I would expect the substitution effect to start in the region with the highest prices, so this is at least some additional evidence that the effect may have started.

The odds are very good that YoY interest rates will be lower starting in November. Possibly we will see another increase in housing sales starting shortly thereafter.  But for the reasons I have laid out yesterday and today, I am not persuaded that the good overall housing permits number in August is a significant positive sign.

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