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Housing Deterioration Bears Close Attention

US

Incoming US housing market data bears increasingly close attention over the next few months, including today's release for September (0830ET: Housing Starts seen at 1.461mln vs 1.575mln prior; Building Permits 1.530mln vs 1.517mln prior).

  • While most coincident US data has remained strong in recent months, the housing sector is a major leading indicator in the economic cycle.
  • The NAHB Homebuilder Sentiment index, which fell for the 10th straight month in October per data out yesterday amid soaring mortgage rates, typically leads Building Permits by a few months (which in turn leads Starts by a few months) .
  • And in turn, major turns in Building Permits leads turning points in the unemployment rate by around 1.5 years (see chart). For context, Permits peaked at 1.9mln in December 2021, putting a labor market turn sometime in mid-2023.
  • Chair Powell notably said last month that "the housing market may have to go through a correction" to improve buyer affordability and - as with many other aspects of the economy - bring supply and demand into better balance. And a deterioration in housing activity from multi-year peaks has previously presaged Fed cutting cycles by a year or two.

Source: Census Bureau, BLS, MNI

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