by Calculated Risk on 10/31/2007 11:34:00 AM

According to the BEA, Residential Investment declined at a 20.1% annual rate in Q3 2007.

The first graph shows Residential Investment (RI) as a percent of GDP since 1960.

Click on graph for larger image

Residential investment, as a percent of GDP, has fallen to 4.51% in Q3 2007, and is now below the median for the last 50 years of 4.56%.

Although RI has fallen significantly from the cycle peak in 2005 (6.3% of GDP in Q3 2005), RI as a percent of GDP is still well above all the significant troughs of the last 50 year (all below 4% of GDP). Based on these past declines, RI as a percent of GDP could still decline significantly over the next year or so.

The fundamentals of supply and demand also suggest further significant declines in RI.

Non Residential Structures

Investment in non-residential structures continues to be very strong, increasing at a 12.3% annualized rate in Q3 2007.

Investment in non-residential structures is now 3.44% of GDP, above the recent peak in 2001. Whereas RI declines prior to a recession, non-residential investment in structures tends to peak during a recession.