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By New_Deal_democrat December 10, 2015 10:27 am
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What comparing single family vs. multi-unit housing tells us about the economy

Something that has puzzled me this year is how single family permits have made new highs, while sales overall have gone sideways.Being the good wonk that I am, this has prompted me to take a more detailed look at the numbers.  Thus last week I wrote that single family home sales have typically peaked before housing permits.

I have also taken a closer look at single family permits vs. multi-unit permits.  The bottom line is, single family housing is more responsive to changes in interest rates, and typically peaks first in an expansion. Multi-unit housing is to some extent an "alternative good."  People who really want to buy a single family home may settle for a condominium (or even an apartment) instead if the single family home is too expensive.  Thus we should expect an increase in interest rates to hit single family homes first, and multi-unit dwellings only later.

This what we see in the historical record.  Let me look at this two ways.  First, here is the YoY change in single family permits (blue) vs. multi-unit permits (red) from 1964 through 1985:

And here they are from 1986 to the present:

The change in single family units is typically larger than that of multi-unit condos or apartments.

Another way to look at this is to subtract multi-unit permits from single family permits. A positive number means that YoY changes in single family permits is better than the YoY change in multi-unit permits:

Notice that multi-family permits always do worse than single family permit in the run-up to a recession -- i.e., single family building had already turned down, and now the alternative product, condos or apartments, had also turned down.

Now here is a close-up on the last 5 years:

As expected, single family permits reacted much more strongly to the 2013 "taper tantrum" than did apartment and condos. Since then, single family permits (with the exception of the May-June multi-unit surge due to NYC) have rebounded more in response to lower rates than have apartment and condos.

That permits for single family homes just hit a new post-recession high makes me think that the positive housing trend underlying this expansion is not over.  As I have said a number of times, in 2015 the expansion has been all about housing and cars (which also set another post-recession record last month), the two most leading segments of the consumer economy.  Together with November's record monthly vehicle sales, housing is telling me that the Doomer chorus is still wrong.

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