On a year-over-year basis the relative uncertainties in the data decline. The annual change from April to April was +19(+/-7) percent; but, in May that figure dropped to +10(+/-6) percent. So, the annual data also shows a significant month-to-month decrease.

Building permit data generally is more precise than the starts data. What's more the permits data leads the starts data by approximately a month. Because of this, the Department of Commerce has chosen the permits indicator as one of the eleven elements of its Composite Index of Leading Economic Indicators (LEI). The seasonally adjusted annual rate of housing units authorized by building permits in May was 1,431,000 -- down 2 (+/-1) percent from April. This seems to indicate that the slowdown in starts will persist through June.

A few months back I reported that a pick up in long-term interest rates seemed to be the stimulus that was bringing buyers back into the home market. Prospective home buyers became actual home buyers in a rush to beat the rising interest rates. Now, interest rates have risen to the point where the rate on a 30-year mortgage is about 1.3 percent higher, and this seems to be throwing a wet blanket on the flames of home-buying enthusiasm.

The housing market, in general, is one of the first economic sectors to rise or fall when economic conditions improve or degrade. So, maybe today's starts and permits data is telling us that the recent rise in long-term interest rates is stifling economic expansion, and that we'll soon be experiencing a pause in the recent upsurge in economic activity.

Byline: Lafferty (MF Merlin)