by Calculated Risk on 7/24/2019 04:37:00 PM

I've been asked to update the second graph in this post: Housing and Recessions

As I noted in earlier posts, when the YoY change in New Home Sales falls about 20%, a recession will usually follow. The one exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession. Note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

Click on graph for larger image.

This graph shows the YoY change in New Home Sales from the Census Bureau.

Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.

It is interesting to look at the '86/'87 and the mid '90s periods. New Home sales fell in both of these periods, although not quite 20%. As I noted in earlier posts, the mid '80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid '90s, nonresidential investment remained strong.

Although new home sales were down towards the end of 2018, the decline wasn't that large historically. As I noted last Fall, I wasn't even on recession watch. Now new home sales are up slightly year-over-year, and 2019 will probably have the most sales since 2007. No worries.