Single-family Home Starts and Recessions

Floyd Norris brings to our attention a unique statistic on Housing and Recessions

Here’s another way to look at the housing start numbers: Take a three-month moving average of single-family starts, at a seasonally adjusted rate. That smoothes out some of the weather-induced volatility.

By that measure, starts have now fallen for 11 consecutive months, and are off more than 30 percent over that period.

Here’s a list of the only four other times (going back to 1959) that the figure fell for 11 consecutive months.

1. November 1973 was the 11th month. A recession began that very month.
2. April 1980 was the 11th month. A recession began in January of that year.
3. November 1981 was the 11th month. A recession began in July of that year.
4. February 1991 was the 11th month. A recession began the previous July.

These days, almost no one thinks a recession is looming.

January 2007 was the 5th such time we have seen this phenomena — and all four prior such instances led to a recession.

Fascinating datapoint Floyd — thanks for pointing it out.


Housing and Recessions
Floyd Norris
NYTimes, FEBRUARY 16, 2007,  4:12 PM

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  1. Kevin Rooney commented on Feb 20

    A housing slowdown only preceded a recession once. But we have never managed to have this severe a housing slowdown even while the economy was not contracting.
    Yes, this is new territory, but that does not mean it is necessarily pleasant territory. With housing this weak now, if the economy were to slow or contract, it is hard to imagine how hard housing might fall.

  2. apw commented on Feb 20

    Did speculation play such a major role in any of these other cycles? The current slowdown doesn’t seem so indicative of anything, other than speculative exhaustion. If so many empty homes weren’t sitting around, and prices hadn’t gone up for no real reason, would we be seeing a building slowdown now?

    Not that the cut back in economic activity resulting from our slowdown can’t pull the economy into recession, but it does seem different this time–more the tail wagging the dog.

  3. V L commented on Feb 20

    This time, it is different. The Fed has engineered magic goldilocks economy and soon we will be having money growing on the trees. We just need more of poor, uneducated, and undocumented cheap workers to pick the money from the trees for us. (I also need cheap labor for my business to maximize the margins and screw everybody else). Forget about a recession, this is the best story never told!

  4. Francois commented on Feb 20

    “A housing slowdown in a strong job market…”

    I can’t help wondering how “strong” the job market really is, compared to the previous time frames mentioned here.

    Sure, the numbers look great…but is this the whole story? Are these numbers even reliable? The BLS itself acknowledge a considerable margin of error in their published data.

    What kind of jobs have made the bulk of the actual recovery? The ones that help workers easily fend off the effects of real inflation? Judging by the level of household debt, one has the right (I daresay the duty) to be a tad skeptical. The job recovery has never been that weak post-recession in a very long time, and disposable income tells a tale of the have-more-shall-get-more vs. the have-less-and-less. Not a very solid foundation to protect the financial house during an economic storm.

    As for the economy, it hasn’t contracted…yet. Unless the business cycle has been repealed, it’ll happen. We can only hope that it won’t contract soon, while the housing market is getting uglier by the month.

  5. Michael Schumacher commented on Feb 20

    Remember folks this data, that trillions of dollars of decisions are made from, has been and usually is wrong to begin with. Inflation is most likely running at 6-7% not the rosy picture that the Fed puts out at 2-2.5%. And on cue the jobs numbers are revised upwards to take up the slack that the current #’s do not accomplish (as those are revised upwards the following month to continue the cycle. THe jobs numbers are nothing more than the Burger King Index (BKI) as it most likely reflects jobs available at minimum to low wage rates. Plain and simple… this gov’t has lied, is lying and will continue to lie to us until the next election cycle. The economy is THE only thing that Bush and his administration can claim credit for. They have managed, with the help of Goldman Sachs, to bully the market up to “record highs” while most of the signs of a retreating economy are just not paid attention to. We now live in an economic emvironment where bad=good and good =really effing good. The reality of it is allowed to be ignored with the massive amounts of liquidity around becasue that money only goes to one place…..the stock market. Thank you Bernancke and Paulsen for truly fucking up our economy for the benefit of big business and the media who allow these assholes to continually rip off people who should start looking around for a sturdy wheel-barrow or two so that they have enough space to fill it with the worthless dollars needed to shop for groceries

  6. Sponge Todd Square Pants commented on Feb 20

    Michael Schumacher

    Be careful.Fomenting dissent in post Patriot Act America is strongly discouraged. Opening the eyes of Joe and Jane Six pack to the reality around them does not sit well with the powers that be.

  7. Fullcarry commented on Feb 20

    There is alot of recession predicting going on in the housing blog-osphere.

  8. Schahrzad Berkland commented on Feb 20

    The UCLA Anderson Forecast predicts that housing prices cannot fall, because historically they fall only when we have rising unemployment. What they fail to realize (and so does JArnold above), is that whenever large groups of people cannot make their mortgage payments, the housing market turns down.

    In the past, unemployment was the reason that large groups of people fell behind on their mortgages. This time, it is upward-adjusting mortgages.

    As I wrote in this article foreclosures are a lagging indicator. They show us the distress that has already occurred. Unemployment is a lagging indicator too. As is population decline.

    Does anyone know why Wells Fargo is sitting on their REOs for so many months (in a random sample of 3 that I looked at)? Are they the servicer only and thus don’t care about the house?

  9. CDizzle commented on Feb 20

    I’d rather lose my job than not be able to pay my mortgage. I’ve lost jobs…I’ve never had my house foreclosed on. The discomfort that a 50-100% monthly mortgage payment brings for most outweighs the temporary setback from losing a job. Unemployment is an “after the fact” stat…is doesn’t show up until the damage is done more often than not, IMHO. Let’s also remember that RE taxes are increasing at an increasing rate as a lagged effect of RE appreciation. RE insurance goes up as Katrina/other aftermath soaks into to the actuarial computations. But man does my 42-inch Plasma look nice!!!

    Day-to-day perspective can really obscure that huge black cloud that takes 6-36 months to meander in and P— on the Parade!!!

    -still short BBY-

  10. HVH commented on Feb 20

    Ms. Berkland,
    The only way in which serviced loans show up on WFC’s balance sheet is as Mortgage Servicing Rights (MSRs), which are valued as the NPV of estimated future servicing income. The principal must be reported on another company’s balance sheet.

    So the REO must be coming from loans for which they still hold the principal. I don’t know why they would delay sale of REO.

    For WFCs consumer mortgages, YTD Sep2006-Sep2005, chargeoffs (losses) actually decreased slightly, while recoveries increased. Point-to-point Sep06-Sep05, they reduced their consumer mortgage holdings considerably. Looks like they were able to sell a lot of bad loans.

  11. bearing commented on Feb 20

    We’re already in a recession if we use pre Clinton CPI computation. The last of the credit exapnsion now playing out amongst the professional specs (private equity/hedge funds) so once this bid fades be prepared. The post 9/11 reflation global central banking bet has not produced enough sustainable wealth creation (read real employment) so the debt contraction must begin.

  12. Winston Munn commented on Feb 20

    Seems to me that the end of this madness will be when the U.S. gets a margin call; however, in what form that call comes is hard to guess. It may come when the off-deficit obligations of Medicare kick in for real with the baby boomers, and doctors, hospitals, nurses, and such want real, honest-to-goodness cash payment from Uncle Sam and won’t reinvest those dollars in Boomerang Bonds ; it could come from off-deficit Social Security and those darn baby boomers again, now a bunch of old folks needing real money to pay bills; or it might come when the American consumer finally exhausts all avenues of debt accumulation and can no longer buy foreign-made goods, leaving the FCBs short of dollars to roll over their bonds.

    In the meantime, the executive branch control of the Commerce Department and Department of Labor will continue to manufacture docile numbers “for national security” interests (read keep COLA payments low, stocks up) until Todo yanks down the curtain and exposes Oz, Ponzi, and his schemes.

    But until that margin call comes, it’s “Up, up and away, in my beautiful, my beautiful balloon!”

  13. anp commented on Feb 20

    The datapoint may have a problem of flawed causality. The author seems to be inferring a very high probability of a recession occurring soon because of the 11 consecutive months drop in housing starts.

    However, in 3 of the 4 instances given – April 1980, Nov 1981 and February 1991 a recession was already underway so all things being equal its not surprising that housing starts dropped in those periods.

    I’d have to (cautiously) agree with some posts here that “its different this time” – largely due to some very obvious structural
    differences both in the US economy and the global economy in 2007 as opposed to the 1980s or 1990s. Corporate defaults are at all time lows, cash as a percentage of assets are at nearly twice the average, the percentage of corporate profits earned outside of the US are at all time highs, the supply shock from emerging markets still exists, GDP volatility is at very low levels etc etc. These conditions did not exist during the 1980s or 90s

  14. oldprof commented on Feb 20

    I cannot believe that Barry really sees this as evidence of a housing/recession relationship that is relevant to the current situation.

    I attribute it to vacation posting and California sunshine. Those interested can check out my site for further analysis.

  15. Winston Munn commented on Feb 20

    The reason it is “different this time” is because it is always different – the dynamic driver of the upward cycle varies over history. This time the dynamic driver has been cheap debt and easy credit, which has led demand, while also explaining why job creation has been so miserable in this “jobless recovery.”

    What leads up eventually causes the demise. Whether an emergency meeting of the Fed to protect the dollar with a severe rate increase or a sudden and shocking unwind of the carry trade or something unknown at this time, the end will be sudden, shocking, and potentially devastating.

  16. me commented on Feb 21

    Booming economy? I suppose autos are booming too?

    As far as housing just read the 28% drop in HD profits. Don’t think they will start laying off? What about the sub-prime lenders going gout of business, are they hiring? This hasn’t even started yet.

  17. me commented on Feb 21

    As an addendum, Wells Fargo is firing 250 in Charlotte due to subprine lending problems. Credit is tightening. Just beginning.

  18. A Dash of Insight commented on May 7

    Housing and Recessions: A Proposed Relationship

    Floyd Norris, the noted financial columnist for the New York Times, has recently begun blogging in addition to writing his regular column. He recently posted some research he had conducted on the housing market and recessions. Norris takes a three-month

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