July housing permits and starts: yellow flag for economy in 2022
July housing permits and starts: yellow flag for economy in 2022
Last month I noted that, from here on, the comparisons with 2020 in housing would become much more challenging. And so they have.
While permits (gold in the graph below) did increase this month, their declining trend remains intact. Starts (blue), and more importantly, single-family permits (red, right scale) – the least volatile measure of all – both decreased again, as they have almost relentlessly since the beginning of this year:
Viewed YoY, all three are only 2.5%-6.0% above last July:
Here is a graph I have run many times, the inverted YoY change in interest rates (blue) vs. the YoY% change in single-family permits (red/10 for scale):
Note that in late 2018-early 2019, in the face of a similar increase in interest rates, permits actually declined YoY. Almost certainly, by September permits and starts will be negative YoY again.
All of which is of academic interest, except that housing is a very important long leading indicator for the economy. Starts are currently off about 7.5% from their peak, while both total and single-family permits are off between 13% to 17%. In the past, when these have declined 20% from the peak, it usually has resulted in a recession at some point 12+ months after the peak. Only one indicator, but still this is a yellow flag at minimum for the economy in 2022.
At some point the shift to electric cars and the gig economy and working from home and the consolidation of retail and Ejobs and McJobs will affect housing trends. Suburban homes and SUVs are not a good fit for our new new economy business model. Of course the old NEBM was not a good fit for families, reality, nor sustainability, but for a while it seemed to work well for the FIRE sector.
Eventually, residential real estate everywhere will look more like New York City with its high rises and public transportation, except for high income families in the exurbs. The middle class suburbs may become extinct.
why wouldn’t a rise of working from home result in more decentralized population patterns, Ron? who’d want to live in New York if they didn’t have to?
rjs,
Who can work from home? Knowledge workers and Internet retailers come to mind. The knowledge workers can work anywhere there is an Internet connection, even beyond the suburbs such as my household. Suburbs were built for access to cities without needing to live in them. For NYC that is already impractical unless one is rich or really likes driving in heavy traffic for long periods. The same for LA. Those living in the pricier suburbs can move out further now and have a horse for their kids in the back yard. The Internet retailers still depend upon physical transportation hubs.
The move to electric cars comes with its own set of problems, mostly high cost of acquisition, but also limited range, time charging, battery replacement cost, and in the northeast electric power cost. We will run out of oil soon if we do not run out of habitable planet first. Suburbs can be linked to mass transit, so the extinction of suburbs will not be uniform or absolute. Even here in VA we have high speed mass transit links to DC from about 100 miles away. It will be a matter of scalability among other things.
For those determined to commute from CT and MA to NYC, then at least their public schools are far better than average. Here in the South then most public schools are not nearly as good as K-12 online education. Our suburban public schools are better than our urban public schools precisely because of the income demographic segregation experienced between cities and white flight that has not been limited to white for decades. It is however still limited to above median incomes, which is a feature rather than a bug.
Here we have the upper middle west end suburbs built on the high ground above the fall line and the lower middle east end suburbs which lie in the tidal river zone low country. We live at edge of the lower middle suburbs where rural property begins. The nearby White Oak Swamp limits further development here. The west end can still expand further into the rural farmland while building on solid ground, but the main surface roads there already have too many lanes to cross and bumper to bumper on weekends and most of the day during the week. But Richmond VA is not DC; the park and ride is a bus link instead of high speed train; and the ride is less than thirty miles instead of about 100 miles.
So, what about New York City? I cannot say. Many people like city life. Many business people still believe in face to face meetings. However, I agree with you that “a rise of working from home (will) result in more decentralized population patterns,” but suburbs are not decentralized despite their persistent sprawl. Suburbs are less densely populated than cities, but the idea of little yards surrounding shopping malls and schools is a product of centralized convenience as well as class segregation conformity via uniformity. However, the burbs have more appeal to many folk than the diversity we have in the low country of Sandston VA. OTOH, a lot of young folk actually like city life with its lawnmower free and even carefree car-free lifestyle.
On the NC OBX from Duck to Nags Head property is so expensive that the resort areas retail, food service, and hospitality workers must cross the bridge from the mainland each day to go to work as they cannot afford to live there. Further south on the more remote Ocracoke Island there are no homes on ocean-side and sufficient low income sound side housing for the small island work force which is good because the commute from the mainland would take over two hours one way during the busy season because of ferry backups.
Where do food service, hospitality, and retail workers in NYC live? I would imagine older rent controlled high rises, but I have never even visited there much less lived there.
In the Richmond VA metropolitan area the lower income workers employed in the upper middle class west end suburbs live in the city and take public transportation back and forth to work.
However, “Eventually, residential real estate everywhere will look more like New York City” presupposes that we survive climate chaos and control our addiction to fossil fuels.