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By New_Deal_democrat November 30, 2015 10:10 am
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Comparing new homes sales with housing permits - which leads?

The housing market is the single most leading sector of the US economy.  So when it appears to go sideways, that is a cause for concern.  One of the anomalies in the economy this year has been that sales of new single family homes peaked in February and have gone nowhere since, while housing permits for one unit structures have continued to rise, and made a new post-recession peak in October:  

So I decided to take a look at the historical record, and it turns out that it is not unusual at all for single family home sales to make a peak significantly earlier in the economic cycle than permits.

The first thing I did was to compare permits for single family homes (blue) with permits overall (red), and permits for multi-unit dwellings (green), first through the 1980s:

and from 1990 to the present:

In general, permits for single family homes peak at or slightly before permits overall, while permits for multi-unit structures not infrequently peak later.  If we envision the housing sector coming under increasing pressure as an economy fades towards recession, it makes sense that the least expensive part of the housing sector would relatively outperform during that period.

Next, I compared new home sales (red) with housing permits (blue).  Here is the record from 1964 through the 1980s:

and here it is for the 1990s to the present:

There have been a total of 8 housing cycles since 1964 (counting the early and late 1960s cycles separately).  In 6 of those cycles, single family home sales peaked between 1 month and 11 months before housing permits.  Both peaked simultaneously in October 1972, and in the late 1970s, single family homes made a double peak, once 13 months before permits, and then again 6 months later than permits.

In fact, in all but one case, single family homes peaked during or even before the middle 1/3 of the cycle, making them more of a mid-cycle indicator than a long leading indicator.

So even if single family home sales have peaked for this expansion, it does not suggest any oncoming contraction, but only - like so many other series - that we are later in the cycle. 

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