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By New_Deal_democrat June 16, 2015 12:31 pm
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May housing is Teh Awesome! ... But ...

As between housing starts vs. permits, my preferred measure is permits,  They tend to lead starts by a month or so, and they are much less volatile (about half) than starts.

So, needless to say, May's housing report, released this morning, was an upside blowout -- one of the strongest month over month moves ever.  Here's the graph of permits from their 2009 low:

This (together with real money supply and May's real retail sales per capita) comes pretty close to a guarantee that the economy will continue to grow through the second quarter of next year.

But .... don't get too excited.

Here's an update of a graph I have frequently run over the last two years:  housing permits YoY, divided by 100 (blue) compared with the negative of the YoY change in treasury interest rates (red):

Housing tends to follow interest rates with a 6 to 12 month lag.

Notice that there was a spike in permits similar to this month's back in midyear 2013, just after the "taper tantrum" started.  That was caused by potential home buyers locking in mortgages in anticipation of even higher mortgage rates. In other words, some demand was stolen from future months.

Let's also update the "demographic tailwind."  As I have pointed out a number of times, housing is benefitting from the fact that the very large Millennial generation is reaching prime home buying age.  And exactly as with Boomers 50 years ago, the first part of the housing market to benefit is apartments and condos.  This next graph compares single family permits (blue) with multi-unit permits (red):

It is no surprise, especially with real median asking rents at a record high, that the surge in demand is bringing forth supply.

Finally, here's the most recent graph of mortgage interest rates, showing their recent spike above 4%:

While this isn't a big enough spike to cause me to think that housing will roll over, especially with the demographic tailwind, if higher rates persist, we should expect housing growth to at least moderate by about the end of this year.

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