The US Construction Market Continues to shrink
- The number of building permits issued in the US fell 1.6% in December to 1,330,000, the lowest number since May 2020. The decline has been 30% since the peak in March last year.
- The number of households as of December fell by 1.4% to 1,382,000, down 23% from April last year.
- The volume of the construction market is shrinking at about the same rate as during the collapse of the real estate bubble in 2006.
- On the other hand, the construction volume is now about what it was before the start of 2020. So far we are seeing nothing but excess volume deflation , but not the beginning of a collapse.
- The same observation is confirmed by the comparative stability of new home prices in recent months (released in a separate report).
- Summer price volatility was not the beginning of a breakdown.
- An additional 5% drop in buildings or permits issued over the next few months would be within the market’s normalization range to pre-pandemic levels.
- But a sustained decline below that would already signal an alarming slowdown in demand and the economy, which not only poses the risks of negative market repercussions, but could also force the Federal Reserve to more actively tone down its rhetoric.