Sunday, December 19, 2010

Housing starts as leading indicator for recessions

While I was working on my doctoral thesis on housing starts in Canada, I was intrigued by the fact that housing starts always served as leading indicators for recessions, and times, for recovery. The following graph from St. Louis Federal Reserve presents an explicit picture of the same phenomenon:

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The role of housing was unique in the last recession. Consider the following graph, also from the same source, which shows that unlike previous recessions, the last recession in the United States saw a significant decline in housing prices.

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