US Housing Permit Activity Improves – Strongest in 3-Years

Housing is slowly and steadily showing signs of a bottom. Housing permits are required in most states before a housing start and are a leading indicator of overall housing demand. Housing permits improved to 653k which represents a 10.8% increase from September and a 17.6% improvement vs. last year. Both single-family and multifamily permits improved. Mortgage rates falling to 4% have helped housing affordability improve to the best levels in a number of decades. The combination of lower rates, growing median incomes, and falling house prices have all contributed. The longer-term outlook for housing is sound and buyers today should generally expect price appreciation over the longer-term.

The market remains almost entirely focused on Europe. The financial crisis in the Eurozone is the most important driver and risk to the global economy today. Underlying improvements in segments of the US economy (labor market and housing market) are being almost completely ignored. Markets are correctly prioritizing Europe over anything else today but it is important to continue to monitor the details of underlying  US economic trends because if the chances of a growing European crisis/catastrophe reduce all of the data which is currently being ignored will become the primary drivers for financial markets again.

Housing market rebounds are important drivers of sustained economic recoveries for a number of reasons:

• Residential GDP is small component of total GDP but the swings can be large.

• Housing construction, remodeling, and home sales are labor intensive industries. A sustained turnaround will create jobs.

• House price stabilization and appreciation improves household balance sheets, increases consumer confidence, and improves spending power. Personal consumption expenditures (PCE) are the largest component of GDP.

• The US financial system has been plagued by the decline in house prices and subsequent increase in delinquencies and foreclosures. Stabilization will help the capitalization of US financials.