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By New_Deal_democrat March 26, 2015 11:40 am
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Housing update for March 2015: so far, so positive this year

With all of the February numbers for the housing market reported, let's update this look at housing.  Remember that housing is the single most important factor leading the overall economy, as changes in housing will feed through into the broader economy over the next 12+ months.

To reiterate, housing turns in a predictable pattern:

  • -first, interest rates turn
  • -second, new housing sales turn
  • -third, housing prices turn

So let's look at each in order:

First, here are mortgage rates (inverted, blue) compared with housing permits (red):

Mortgage rates hit a peak at the beginning of 2014 after the midyear 2013 "taper tantrum." Since the scale is inverted, that is shown as a trough. Mortgage rates have been generally declining since then.  Housing permits made a trough in early 2014, and have been improving slowly since.  Permits have also benefitted from the demographic tailwind of the large Millennial generation hitting prime age for buying houses. 

Next, here is a detailed look at the YoY% change in housing starts (blue), permits (red), new single family home sales (green), and existing home sales (purple):

The trough of one year ago is readily apparent, as is the continuing pace of improvement in the last three months, February's volatile starts number notwithstanding.

Finally, here is building permits (red) compared with the S&P Case Shiller housing price index (blue):

The stall in housing sales one year ago has recently showed up later in 2014, in housing prices, which are starting to advance again.

Since interest rates have continued to improve, we should expect continued improvement in housing permits and starts as well. House price increases should also accelerate at least slightly. The health of the housing market, along with the big decline in gas prices, are the two most prominent reasons why I do not foresee any economic downturn this year, despite recent weakness in industrial production, factory orders, and retail sales.

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