Tuesday, April 24, 2012

U.S. Housing Permits - A Historical Viewpoint

Updated June 26, 2012

Over the past weeks and months, we've been subjected to conflicting data regarding the state of the housing market in the United States with some data releases showing an improvement in housing and other data showing that we are not at the bottom.  The folks at the St. Louis Federal Reserve have some interesting data that gives us some perspective on how the housing market looks compared to its past history as measured by the number of authorized new private housing units building permits or PERMIT in FRED lingo.

Here is a graph showing the number of building permits (in thousands) over the past three years:

Since the depths of the Great Recession, building permits have risen from their nadir of 513,000 units annually in the month of March of 2009 to their current annual level of 780,000 units in the month of May 2012, an improvement of 52 percent.  That appears to be an incredible turnaround, suggesting that the housing market is really starting to take off.  In the last year alone, housing starts have risen by 156,000 units or 25 percent.  If that isn't a recovery, I don't know what is.

But, wait a minute.  Let's look back a bit further in time to see how the current monthly new housing permit data looks compared to what it looked like over the past decade:

That looks a bit different, doesn't it?  The annual rate of new private housing unit permits actually peaked at 2.263 million in September of 2005 and sat at the over two million mark for most of 2004 and 2005.  It wasn't until mid-2006 when new permits began to fall, dropping from 2.212 million in January 2006 to 1.638 million by December 2006, a drop of 25.9 percent over the year.  If we take the peak value of 2.263 million permits and compare it to the current, relatively good looking value of 780,000 permits, the drop is a rather stunning 65.5 percent.  Over the decade from March 2002 to March 2012 alone, the drop from 1.691 million permits to the current level is a slightly less impressive 53.9 percent.

Now, let's look at all of the data that FRED has for PERMIT going back two generations to January 1960 when most baby boomers were still wearing either diapers or short pants:

Over the past 52 years, all but seven of the lowest monthly permit numbers (between 513,000 and 747,000) are from the years between 2009 and 2012.  To put all of the data into perspective, the March 2012 permitting number of 747,000 is the 48th lowest out of the 626 data points in the FRED database.  As well, our frame of reference, the March 2009 data point, is the lowest number of permits over the past 52 years.  The other seven lowest months were from 1966, 1975 and 1981, years when the population of the United States was a fraction of what it is today as shown on this chart:

When the population data and the annual housing permit data is combined, we can quite quickly see that the current per capita permit data is actually very weak.  If we take the per capita permitting number for December 1960 and compare it to the per capita permitting number for March 2012, the March 2012 permitting level is only 41 percent of the 1960 level.  Obviously, that is a very major decline. 

When we're digesting how well America's housing market is doing from the weekly and monthly housing data releases which are generally viewed on a year-over-year basis, I think that this data shows us that we have to compare recent data releases with a view to a much longer-term horizon.  While the mainstream media may be insinuating that the next housing market boom is just around the corner, historical data tells us that we are still mired in the after-effects of the Wall Street-manufactured Great Recession and that by the time the next recession rolls around, single family home permitting and building levels are not likely to be back to historical norms.  We still have a very long way to retrace our path back to housing market normalcy.

1 comment:

  1. Great stuff. You really do need to go back to get a perspective.