It has now been 15 months since Housing Starts last made a new high, and despite the fact that they seem to have stabilized, on a 12-month average basis, they are showing signs of rolling over. With residential housing being such a large share of the economy, we wanted to show how a rollover in Housing Starts fits in with the economic cycle. The chart below shows Housing Starts on a 12-month rolling average basis. In it, we have overlaid recessions in gray and colored the line red whenever the reading hit a one-year low. Looking at the chart, there wasn’t a single recession where the 12-month average reading in Housing Starts wasn’t at 12-month lows heading into the recession. There were, however, a number of ‘false positives’ where the 12-month average had rolled over and no recession followed before Starts started to rebound again. Those occurrences were in the mid-1960s, mid-1980s, mid-1990s (2 periods) and during the early stages of this expansion in 2011. So while the slowdown in Housing Starts is reflective of slower overall growth, it hardly guarantees a recession is around the corner. One trait that these ‘false-positive’ periods do have in common, though, is that during all five of them, the FOMC was easing monetary policy during or shortly after the 12-month low readings in Housing Starts.
Given the volatility in multi-family units, we also ran this analysis using single-family Housing Starts, but here again, the results are similar. While single-family starts have typically already started to roll over well in advance of recessions, not all rollovers in single-family starts have been followed by recessions. Start a two-week free trial to Bespoke Institutional to access our entire suite of investment tools and all of our daily research.