bee Calculated Risk On 2/23/2025 11:04:00 AM
This morning, Carl Quintanilla Posted a Graph on Bluesky from Bacon Supporting the US is heading towards a recession.
Quintanilla Quoted Speaking:
“On a 12-month average basis, .. housing starts have completely rolled over from their peak ..
“Recessions have always followed a rollover in housing starts, and the only question is timing.”
Housing is the basis of one of my favorite models for business cycle forecasting. And Policy changes will clearly have a negative impact on homebuilders. Early in February, I expressed my “increasing concern” about the negative economic impact of “executive / fiscal policy errors”, however, I concluded that post by noting that I was not currently on recession watch.
Here is an update to a graph that uses new home sales, single family housing starts and residential investment. (I Prefer Single Family Starts to Total Starts). 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 months.
The Arrows Point to some of the Earlier Peaks and Troughs for these three measures – and the most recent peak.
New Home Sales Peaked in 2020 as Pandemic Buying Soared. Then New Home Sales and Single-Family Starts turned down in 2021, but that was partly due to the huge surge in sales during the pandemic. In 2022, Both New Home Sales and Single-Family Starts turned down in response to higher mortgage rates.
This decline in Residential Investment would typically have suggested that a recession was coming, however I looked past the pandemic distortions and correctly predicted no recession! The low level of existing home inventory led me to predict that new home sales would pick up – and that happened. We can’t be a slave to any model.
This second graph shows the Yoy change in New Home Sales from the Census Bureau. Currently New Home Sales (Based on 3-Month Average) are Down 1% Year-Over-Year!Usually when the yoy change in new home sales falls about 20%, 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 was in Late 2021 – We Saw a Significant Yoy Decline in New Home Sales related to the pandemic and the surge in new home sales in the second half of 2020. I ignored that downturn as a pandemic distortion. Also note that the sharp declin in 2010 was related to the housing tax credit policy in 2009 – and was just a continuation of the housing bust.
The Yoy change in New Home Sales in Late 2022 and Early 2023 suggested a possible recession. But as I noted earlier, I was able to look past the pandemic distortion and was able to predict a pickup in new home sales due to the low level of existing home inventory and because homebuilders could offer mortgage incentives that would somewhat offset offset offset offset offset offset offset offset offset offset offset offset offset offset offset offset offset offset the sharp inset Mortgage Rates.
Another indicator i like to use is heavy truck sales. This graph shows Heavy Truck Sales Since 1967 Using Data from the Bea. The Dashed Line is the January 2025 Seasonally Adjusted Annual Sales Rate (Saar). Note: “Heavy Trucks – Trucks More Than 14,000 Pounds Gross Vehicle Weight.”
Heavy Truck Sales were at 534 Thousand Saar in January, up from 454 thousand in December, and up 4.6% from 510 thousand saar in January 2025.
Usually, Heavy Truck Sales Decline Sharply Prior to a Recession, however sales were strong in January.
I Share Spoke’s Concern About The Potential Negative Impact of Policy On Housing Starts, But I Think It Is Way Too Early To Start Predicting A Recession.