US Building Permits to Remain Subdued in April

Forecasts show a modest increase of 1.298M

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The monthly building permits data will be released by the Commerce Department today. According to economists polled, building permits are forecast to rise 1.298 million in April.

This follows a modest increase from March. Building permits were revised to show an increase of 1.288 million in March. The data for April will be closely watched as building permits have remained weak in the last two months.

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A surprise disappointment on the data could no doubt raise concerns on the housing markets. This comes as the mortgage rates in the US continue to decline.

However, for the reporting period, mortgage rates were in an upward trend. This could see putting pressure on new home buyers. And, in turn, it could impact the building permits issued during the month of April.

The declines in the building permits also come amid shortages in both skilled labor and land, amid rising costs for construction material. While there is demand, the affordability has been rising, dampening the outlook.

The housing starts data will also be coming out. Forecasts point to an increase in the housing starts to 1,210,000. In March, housing starts grew at a pace of 0.3% comparing to February.

Building Permits Tumble to a 2-year Low in March

Home building in the United States fell to a two year low in March dragged lower by weakness in the single-family units. The data for March suggests that the housing market is continuing to struggle despite better mortgage rates.

U.S. Building permits
U.S. Building permits – March 2019

The decline in building permits for March marks a second consecutive month of declines, according to the Commerce Department. Weather also played its role in the decline of permits. The flooding in the mid-west region alongside weakness in other sub-sectors pushed building permits to the lowest levels since early 2015.

The data on the housing market bucked the trend of an otherwise strong month. During March, retail sales and construction spending rose strongly. The data suggested that the economy maintained the momentum in the last first quarter of the year.

Private housing units rose 1,269,000 in March 2019 on a seasonally adjusted basis. This was about 1.7% below the February figures. In February, building permits for private housing units rose 1,291,000.

On a year over year basis, building permits grew at a pace of 7.8%. But this was below the March 2018 numbers where private housing units grew 1,377,000.

Permits for single-family units in March increased at a pace of 808,000 which was 1.1% from February’s print of 817,000.

Decline in Mortgage Rates Could Push Building Permits Higher

Mortgage rates edged higher in April. But during the last two weeks, the rates fell. Freddie Mac forecasts that mortgage rates could fall by a further by a quarter to a half percentage point in the coming months.

For the previous week, the average fixed mortgage rate for fifteen years fell to 3.57% from 3.60% previously. The mortgage rate on the thirty-year fixed rate fell to 4.10% from 4.14% previously.

While the declines in the mortgage rates could lure home buyers, the recent developments on the US-China trade wars could lead to an increase in prices.

With imports from China attracting a 25% higher tariff, raw materials for construction of homes could rise. This would potentially impact the home prices in the coming months.

Therefore, even in case of a surprise uptick in the building permits data, investors could shrug off the upside surprise. Focus will shift to the housing markets in the coming months against the backdrop of higher tariffs.

The recent inflation reports continue to show no underlying price pressures. This could be a blessing in disguise for home buyers as the Fed will remain on the sidelines.

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