Building Permits Increase 1.1% in October
In October, building permits reached a seasonally adjusted annual rate of 1.487 million, surpassing the forecasted 1.450 million. This marks a 1.1% increase from September and a 4.4% decline compared to one year ago.
Here is the opening of this morning's monthly report:
Privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,487,000. This is 1.1 percent above the revised September rate of 1,471,000, but is 4.4 percent below the October 2022 rate of 1,555,000. Single‐family authorizations in October were at a rate of 968,000; this is 0.5 percent above the revised September figure of 963,000. Authorizations of units in buildings with five units or more were at a rate of 469,000 in October. [link to report]
Background on Building Permits
Building permits track the government issuance of permits that are typically required for builders to begin construction on a new home. The data on building permits give a sense of how much and where future construction activity will take place and thus are an excellent marker of future home building. A critical aspect of the home-building industry is the powerful influence it has on the rest of the economy.
Here is the complete historical series, which dates from 1960. Because of the extreme volatility of the monthly data points, a six-month moving average has been included.
Building Permits: The Population-Adjusted Reality
Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1960. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.
Building Permits: A Footnote on Volatility
The extreme volatility of this monthly indicator is the rationale for paying more attention to its six-month moving average than to its noisy monthly change. Over the complete data series, the absolute MoM average percent change was 4.4%. The MoM range minimum was -24.0% and the maximum was 33.9%. The latest month-over-month percent change is 1.1%.
For visual confirmation of the volatility, here is a snapshot of the monthly percent change since 1960.
A Long-Term Look: Residential Building Permits and Housing Starts
In addition to building permits, the U.S. Census Bureau and the Department of Housing and Urban Development published their October findings for new residential housing starts. Despite the fact that both are monthly seasonally adjusted annualized rate (SAAR) series, they are exceptionally volatile and subject to extensive revisions. Thus it is unwise to assign much significance to a single month.
Over the long haul, however, the two offer a compelling study of trends in residential real estate, especially when we adjust the permits and starts for population growth. Here is an overlay of the two series since the 1959 inception of the starts data and the 1960 inception of the permits data. The monthly data points are preserved as faint dots. The trends are illustrated with six-month moving averages of data divided by the Census Bureau's mid-month population estimates.
Here is a closer look at the overlay since 1990.
ETFs associated with residential real estate include: iShares Residential and Multisector Real Estate ETF (REZ).
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