Housing leads the economy, and interest rates lead housing. So when the “taper tantrum” hit in mid-2013, I was one of the few voices contending that 2014 housing would take a hit. The housing recovery did indeed take a hit, although due to favorable demographics (the large Millennial generation), it never actually turned down significantly. As interest rates moderated through 2014, housing has trended slightly upward. Is it ready for a breakout now?
First, let’s look at 10-year Treasury interest rates since just before the “taper tantrum” in 2013:
Interest rates surged to over 3% by January 2014, and since then have declined to 2% or less, almost completely recovering to their previous lows.
Now let’s compare interest rates with housing permits. In general, in the past, every 1% change in interest rates YoY has led to a change in 100,000 in permits. That Millennials have reached home-buying age gives that relationship a positive bias in favor of housing. Here’s the graph, showing interest rates (inverted, so lower rates show as higher, red) vs. housing permits (in 1,000s YoY, blue) for the last five years:
Here’s the same graph, zoomed in on the last year:
Permits have followed interest rates with a lag of 6-10 months. Interest rates YoY made their big move to positivity starting last May, so it is reasonable to expect housing to follow by March.
Now here is the monthly number of housing permits over the last two years:
Last January was the worst month in almost two years. We are now eight months after the big positive YoY turn in interest rates. Housing should break out to the upside over the next few months – and maybe in tomorrow’s report.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, Blogger Hale Stewart has a total average return of -4.6% and a 33% success rate. Hale Stewart is Ranked #3239 out of 4200 Bloggers