Housing Permits a Leading Indicator? Of What?

Mish

Based on permits, Econoday called today's housing report "very solid". Let's investigate the claim with pictures.

Blame the Weaher

Earlier today I reported, ​Housing Starts Unexpected Dive 8.2%: Economists Blame the Weather.

Econoday made this claim: "Starts can be affected by weather which along with related adjustments are always factors for this reading in the winter months."

It's amusing how economists never seem to know what the weather "was" until economic reports come out a month later.

"Very Solid Report"

What really caught my eye was Econoday's opening gambit.

"A surprising but perhaps one-time drop in single-family starts masks what is otherwise a very solid housing starts and permits report for December. ... But the backlog behind future starts continues to build as permits came in very strong, virtually steady at a 1.302 million rate and showing a noticeable 1.8 percent gain for single-family permits to 881,000."

Leading Indicators

The Consumer Conference Board's list of Leading Indicators contains housing permits, the S&P 500, the yield curve, IMS, weekly earnings, M2, and the University of Michigan's Consumer sentiment report.

Permits a "Backlog of Future Starts"

Let's investigate the claim in pictures.

Starts vs Permits

Image placeholder title

Starts vs. Permits Synopsis

  • Permits are not a leading indicator of starts.
  • If there are sales, homebuilders will start homes.
  • If there are not sales, homebuilders will not start construction no matter how many permits they have.

Starts vs. Permits - Percent Change from Year Ago

Image placeholder title

​Although permits are required to do a start, permits do not represent a "backlog behind future starts".

In fact, year-over-year spikes in permits tend to be a lagging indicator.

Mike "Mish" Shedlock

Comments (5)
No. 1-5
DFWRealEstate
DFWRealEstate

That "backlog" is like the "pent-up demand" feature built into the real estate market. There is almost always demand for homes. The question is at what price? Interesting that Econoday would try to spin it that way.

El_Tedo
El_Tedo

Does the survey specifically count only new construction permits? I'm wondering if hurricane repairs are contributing to the decent permit numbers.

KidHorn
KidHorn

When a builder acquires land, one of the first things they do is start the permitting process so they'll have an idea of what needs to be done to build. They typically have 6 months to a year to begin construction without having to get a new permit. Many times they discover that in order to build, they need to do something unexpected so they get the permit and will never build. Or they decide to use the land for something else. Many times they sit on the land or put it up for sale. Sometimes they wont start construction on any units without a certain pct of up front sales. You don't want to run utilities to a neighborhood for one house.

MishMash
MishMash

Cruising right along where I'm at.

Stuki
Stuki

In a financialized Dystopia, “all the great things I’m going to do tomorrow, just give me some freshly printed cash today, so I can afford paying my bills while making promises” is valued higher than anything I am actually doing. Hence housing permits are more valuable than houses. Like empty promises to build flying/electric/robotic cars, and cell phones that suspend gravity, trump building cars and phones that do what people need cars and phones to do. Well, and in a cost effective fashion.


Global Economics

FEATURED
COMMUNITY