http://bonddad.blogspot.com/2016/10/the-darkening-skies.html
In view of the ambiguous signals from other long leading indicators, I said that housing data this month would take on an added importance. In general, what I have been looking for is the recent lows in interest rates beginning to feed through into housing mortgages and construction.
So yesterday was the report on September housing starts and permits, and it was clear as mud! Starts dropped sharply, while permits rose significantly:
Although generally permits slightly lead starts, and are less volatile, in the last year I have paid more attention to starts, and to single family permits, because of a very large distortion in multi-family permits in May and June 2015 due to the expiration of a housing program in NYC.
We've already looked at starts above. Here are single family permits:
As I've noted in the past, single family permits are just as reliable as permits overall as a long leading signal. Four previous times in the last 18 months single family permits have been between 738,000 and 741,000 annually (their post-recession high). Yesterday's report was the fifth time, with a reading of 739,000.
Another way I have tried to avoid the distortions caused by NYC is to exclude the northeastern region from permits. Here's what that looks like:
Like single family permits, it is near its high of one year ago, but has not made another one. (Next week we'll get the state-by-state look. Until then it is impossible just to exclude NY State).
As I said above, clear as mud!
What I have expected is for housing to follow interest rates. To recap, here is the long-term correlation between mortgage interest rates (blue, inverted) and housing starts YoY (red):


