Housing starts are expected to total 929,000 in today’s update for May, based on The Capital Spectator's average econometric forecast (seasonally adjusted annual rate). That’s a moderate increase vs. the previously reported 853,000 for April. Meanwhile, The Capital Spectator's average projected gain for May is slightly below the numbers in several consensus forecasts drawn from surveys of economists.
Here's a closer look at the numbers, followed by brief definitions of the methodologies behind The Capital Spectator's projections:
VAR-3: A vector autoregression model that analyzes three economic series to project housing starts: new home sales, newly issued permits for residential construction, and the monthly supply of homes for sale. VAR analyzes the interdependent relationships of these series with housing starts through history. The forecasts are run in R using the "vars" package.
R-1: A linear regression model that analyzes the NAHB Housing Market Index in context with housing starts. The historical relationship between the data sets is applied to the more recently updated NAHB Housing Market Index to project housing starts. The computations are run in R.