Housing Permits Reach Highest Level in a Year

Housing permits are growing at their fastest annual rate since May 2016, which is a positive sign for manufacturing.

There were 125,000 housing permits filed in May 2018, the highest number of permits since June 2017 and the second-highest since June 2015. Compared with one year ago, housing permits increased 10.6 percent, which was the third time in five months that the month-over-month rate of growth was faster than 10 percent. The annual rate of growth accelerated for the second month in a row to 7.9 percent, which was the fastest rate of growth since May 2016. Based on the strength of recent month-over-month growth, the annual rate of growth should accelerate for at a least a few more months. This is a positive sign for manufacturing as housing permits typically lead industrial production by 10 months and capital equipment spending by almost 30 months. However, these lead times have shortened since the Great Recession.

But, how much longer will the accelerating growth in housing permits last?

The 10-year Treasury rate is an excellent leading indicator for housing permits. For the second month in a row, the year-over-year change in the real 10-year Treasury rate has increased. After nearly two years of a declining year-over-year change, the change in the real 10-year Treasury rate – 32 basis points – was its highest since April 2016. An increasing year-over-year change in the real 10-year Treasury rate is negative for housing permits. Typically, changes in the interest rate lead changes in housing permits by 12-14 months, so it will take some time for it to affect the housing market, but that change is coming.


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