Housing Starts And The Economic Cycle

In our earlier post on Housing Starts and Building Permits, we highlighted how uncommon back to back better than expected readings in both reports have been in recent history. Strong economic data is obviously a positive for the economy, but in this post, we wanted to illustrate how housing data and the economic cycle have interacted with each other over time.

The chart below shows historical levels of Housing Starts (on a 12-month average basis) going back to 1967 with economic recessions shaded in gray. Looking at this chart, two things stand out. First, even after more than eight years of recovery, current levels of Housing Starts are closer to levels seen at the depth of recessions rather than late in an economic cycle. The second thing that stands out is that ahead of every prior recession since 1967, Housing Starts peaked and began to roll over well in advance of the economy’s peak. With current levels of Housing Starts right near their highs of the cycle, that would imply that any possible recession would still be months out from here.

Looking at the current period in more detail, the chart below shows the 12-month average of Housing Starts and Building Permits going back to 2010. In this chart, you can see that average levels of Housing Starts, while not rolling over, are actually showing some signs of leveling off in the last three months. Building Permits, on the other hand, continue to march higher to new cycle highs, so that bodes well for the future.

As mentioned in our earlier post, trends in single-family Housing Starts and Building Permits both have shown relative strength versus trends in multi-family units. Because single-family units tend to have more of an economic impact than multi-family units, this is a positive signal. The 12-month averages for single-family Starts and Permits show this trend as both are continuing to trend higher to their best levels of the cycle. Multi-Family units, however, aren’t looking nearly as positive with starts peaking back in February, while Permits topped out all the way back in January 2016.

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