Building Permits to Rebound

The US monthly building permits data is due for release today. Investors are expecting a rebound in July. The building permits data measures the new privately-owned housing units, authorized by the permits issuing authority.

In June, building permits fell to the lowest levels since 2017. The data underscored a weak patch of economic reports during the month.

Building permits measure the early stage approval for construction.

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In June, building permits fell by a revised 5.2% from the initially revised 6.1% on the year in June. On a seasonally adjusted basis, this was about 1.23 million (revised). Forecasts for July are rather optimistic in comparison.

The general consensus is to see a pick-up in activity.

On a seasonally adjusted basis, building permits are due to rise by 1.26 million for July. In percentage terms, this marks a 5.6% increase on a month to month basis.

The leading indicators for the housing markets are often volatile on a month to month basis. However, the overall picture shows that the housing sector has been trending weaker. This was partially due to the higher interest rates.

On a year over year basis, U.S. building permits are down 5.67%.

Some analysts believe that the decline in the building permits data is due to the falling appetite for apartment constructions. Given that the consumer confidence is stable, this could be true.

The rather healthy, albeit somewhat shaky, labor market data also supports this view. Mortgage rates, which were rising previously, show signs of stabilizing. This was when the Fed cut interest rates by a quarter basis point in July. Mortgage rates in July were down 4.52% from the year before.

Housing Market Index Edged Higher in July

In July, the US housing market index as measured by the National Association of Home Builders (NAHB) edged higher. The index, which measures home builder’s confidence has been rebounding since the end of last year.

The index shows that the home building activity is still in recovery and is yet to rise above the peak from December 2017.

The falling mortgage rates also saw consumers fueling demand, as seen by the rising in mortgage applications. On a volume basis, mortgage applications jumped 5.3% in the week ending August 4^th.

Compared to a year ago, the volume was 46.5% higher. This was when US interest rates were significantly higher.

Residential investment is another factor to consider. Residential investment has been a drag on the US GDP growth for the past six consecutive quarters. But the pace of declines has slowed since the start of this year.

There has been a modest recovery in home sales which has been in a steady decline since 2017. Existing home sales have been posting a modest recovery.

There are both positive and negative takeaways though, which could see a surprise in today’s housing start reports. The fact remains that the outlook for the US economy going forward remains mixed.

The threat of trade wars, which was recently reignited by President Trump, will also influence the housing starts data. The higher cost of raw material imports could potentially dampen the effects of lower interest rates.

The housing markets are seen as one of the first economic indicators that react to the ups and downs in the US economy. While there could be a rebound in the building permits data, the housing starts report will be a key factor.

On a seasonally adjusted basis, housing starts for July are due to rise by 1.26 million in July. This follows a 0.9% decline in June.

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