Housing Starts & Permits Move in Different Directions; FOMC Commences

Tuesday, September 20, 2022

Ahead of today’s opening bell, we’re again seeing a sour mood in pre-market trading, as we did a day ago. Yesterday saw a big pop in the last hour before the close, and all major indexes finished decisively into the green. This morning, it appears investors are in a mood to give it back.

That said, we saw a narrowing of these pre-market losses upon new results from Housing Starts and Building Permits for August: new starts surged past expectations, 1.575 million versus 1.50 million consensus. It also represents an impressive leap from the big downward revision for July — 1.404 million, down from 1.45 million originally reported and by far the lowest print of the past 12 months.

Keep in mind there was an August pullback in 30-year fixed mortgage rates, back down toward 5%. This helped urge prospective home buyers back into the market, although the caveat here is that mortgage rates are now up the highest they’ve been in more than a decade, around 6.4%. Thus, expect these new starts for September to come back down to where they were in July.

Building Permits, often seen as a proxy for future starts, acknowledges this already: 1.517 million permits for August is more than 100K lower than the expected 1.62 million, and even further down from the strong upward revision for July, 1.685 million. This print also represents not only the lowest monthly result of the past 12 months, but is the lowest since the first half of 2020.

In fewer words, Housing Starts grew +12.2% month over month, versus expectations of +0.3%, while Building Permits fell -10% versus expectations of -4.4%. We may see these figures reverse a month from now, when higher mortgage rates in the past month are likely to once again cool the once-hot housing market.

Pre-market futures have cast a positive light on these numbers, albeit while still in the red: prior to this latest housing data, we were -210 points on the Dow, -30 on the S&P 500 and -100 on the Nasdaq. Within 15-20 minutes or so, we’re now -175 on the Dow, -22 on the S&P and -78 on the Nasdaq. The Federal Open Market Committee (FOMC) has reconvened for its latest meeting on monetary policy; we are already pricing in the 75 basis-point interest rate hike, bringing the Fed funds rate to 3.00-3.25%.

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