A newly released leading economic indicator developed by Moody’s Analytics identified Building Permits as “the most critical economic variable for predicting recessions” and here is the vital message today…
Building Permits, released by the U.S. Census Bureau earlier this week, fell -3.7% in their latest reading – coming in well below expectations. Permits now sit at the lowest level in over 5 years. They rarely fall to this level outside of a recession, and a continued downtrend would be a significant cause for concern – especially given its predictive nature.
And other housing market indicators point to permits continuing to fall…
The National Association of Home Builders (NAHB) Builder Confidence Survey was unchanged in its latest release, despite hopes for lower mortgages rates in the coming months. A reading under 50 indicates builders are pessimistic about the current and near-term outlook for the housing market, and the Index has now been below this level for 17 months.
While housing stocks have rallied on expectations of lower rates, the NAHB release reveals that a slight decline in mortgage rates is not enough to spark demand as the Traffic of Prospective Buyers Index remains near the lowest level on record. With 39% of builders cutting prices and 65% using sales incentives, building permits are unlikely to bounce back any time soon.
It will be critical to keep a pulse on housing over the coming months as a leading indicator of the health of the U.S. economy.