by Calculated Risk on 10/25/2021 01:34:00 PM
The arrows point to some of the earlier peaks and troughs for these three measures.
The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.
New home sales and single family starts have turned down recently, but this is because of the huge surge in sales and starts in the 2nd half of 2020.
Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.
1) When the YoY change in New Home Sales falls about 20%, usually a recession will follow. An exception for this data series was the mid ’60s when the Vietnam buildup kept the economy out of recession. Another exception is the current situation – due to the pandemic and the pickup in new home sales in the second half of 2020.
2) It is also interesting to look at the ’86/’87 and the mid ’90s periods. New Home sales fell in both of these periods, although not quite 20%. As I noted in earlier posts, the mid ’80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid ’90s, nonresidential investment remained strong.
Although new home sales are currently down over 20% year-over-year, this is just due to the delayed sales in 2020, and is not an indicator of an impending recession. No worries.