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Because no data will be released tomorrow due to the Federal holiday, I am going to defer a deeper look at the very important housing sector until then. Today, I’ll just note the top-line indications from this morning’s housing construction data.

As per usual, permits are much less noisy than starts, and slightly more leading. Single-family permits are the least noisy of all the data, so I pay the most attention to that number. And the numbers for May were not good.

Permits (gold) declined -29,000 annualized to 1.393 million, the lowest number since June 2020. Single-family permits (red) also declined, by 25,000 annualized, to 898,000, the lowest in 2 years. Starts (light blue) declined -136,000 annualized to 1.256 million, the lowest since May 2020:

Recall that mortgage rates generally lead housing permits and starts, so to some extent, this is a function of those rates (blue, left scale in the graph below), which for the last seven months have hovered near the higher end of their range since late 2022:

Some of this may also be a function of Tariff-palooza!, which has caused the price of construction materials to jump (more on that tomorrow). But it is probably also part of a feedback loop, because the number that represents where the proverbial rubber meets the road for actual economic activity - housing units under construction - declined another -29,000 annualized to 1.375 million, the lowest number since June 2021, and -19.8% below their October 2022 high:

More often than not in the past, by the time units under construction had declined by this much, a recession had already begun. The only two exceptions were the late 1980s, where the pre-recession decline was -28.2%, and 2007, where the pre-recession decline was 25.6%.

I will explore more why this time around, no recession has begun yet, with my more in-depth look at housing tomorrow.

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