May Housing Permits And Starts Continue Down From Recent Peak

In May housing permits (blue in the graph below), including the least volatile single-family permits (red, right scale), continued to decline from their January peak. Meanwhile, the more volatile and slightly lagging housing starts (green) increased, but remained below their March peak:

The level of construction activity as high as or higher than its pre-pandemic peak is continuing. On the other hand, with a 10% decline in permits, and 9% in starts, the minimum decline to be consistent with a possible upcoming recession has nearly been met (while a 20% decline is more typical). For now, I interpret this to mean a sign of a slowing down of economic growth next year.

Finally, here is the YoY change in mortgage rates (red), inverted so that up = economic positive, and down = economic negative, compared with total permits (blue)/10 for scale:

As I have said many times before, mortgage rates lead permits and starts. The artifact of comparisons with the pandemic lockdown months will end next month, at which time I expect permits to be much more in line with their historical relationship with interest rates than they have been in the past few months.