Are We Headed for Recession? What Single-Family Housing Authorizations Predict

Are We Headed for Recession?

What Single-Family Housing Authorizations Predict

Single-family housing authorizations decreased for the second-consecutive month in December, according to BuildFax’s Housing Health Report. From November to December 2018, BuildFax noted a 0.95% decrease in single-family housing authorizations, and year-over-year, there was a 3.76% decrease. This is notable because single-family housing authorizations are highly predictive of recessions, said Holly Tachovsky, CEO of BuildFax.

“The potential for an economic downturn has been discussed over the past few months as more signals of a recession come into alignment,” said Tachovsky. “We’ve been tracking single-family housing authorizations daily for a more granular understanding of whether a decline might be on the horizon,” she added, noting that BuildFax has also been monitoring interest rates and changes in home prices and inventory.

The trailing three-month outlook on single-family housing authorizations has the highest correlation to signals of a possible economic downturn, and with the 1.22% decrease among other housing activity declines, it’s a sign worth monitoring. In other words, it’s still too soon to know.

Construction activity informs economic health analyses, Buildfax COO Jonathan Kanarek explains.

“National construction activity has been and will continue to be a go-to indicator for economic health,” say Kanarek. “The health of the housing market is two-fold. Of course, it’s important to see the growth of new construction as a critical indicator of economic health, but remodeling and maintenance specifically measures the health of the existing housing stock and consumer confidence.

Property owners are disinclined to start a remodeling project, which is often a substantial undertaking, if there’s anxiety in the market, low consumer confidence, or decreased access to capital. And structures that do not see regular maintenance activity will become greater risks, leading to a higher propensity for damage in the face of convective storms or natural disasters. These factors together (new building, remodeling and maintenance) provide a comprehensive picture of the health of U.S. housing stock.”

Buildfax’s Housing Health Report

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