Housing Turns (Slightly) Negative

New Deal Democrat profile picture
New Deal Democrat


  • Housing sales are an important, long leading indicator.
  • There are at least 7 ways to track housing sales.
  • As of Thursday morning, 4 of them are negative.
  • But, one negative series has not persisted long enough, and a second is well within the range of being revised away.


Now that we have all of the reports on housing sales for July, let's update with a comprehensive look at this long leading economic indicator (note I am not addressing prices in this article. I'll do that in the next week or two after the Case Shiller and FHFA price reports.).

First of all, remember that the prime (but not exclusive) determinant of housing sales is interest rates. If there were any doubt, here is a 45-year graph comparing the YoY changes in the two:

With a few important exceptions - most especially the housing bubble and ensuing bust of 10 years ago and 2014 (and 1966-68, which I cannot show on a FRED graph), when a demographic surge in young adults of prime first-home buying age overcame interest rate increases of less than 2% - housing sales have resolutely followed interest rates with roughly a 6-month lag.

Now let's turn to the measures of home sales. They are:

  • (Quarterly) private residential investment as a share of GDP (measured nominally or in real terms)
  • (Weekly) purchase mortgage applications
  • (Monthly) housing permits and starts (measured overall and for single family only)
  • (Monthly) new and existing home sales

Updating the 7 measures of home sales

Let's take a look at the current state of each in turn.

(Quarterly) private residential investment as a share of GDP (measured nominally or in real terms)

This was reported for Q2 at the end of July. Measured nominally, this has been flat for the last 3 quarters. Measured in real terms, it has been declining since Q1 of 2017. In case you are scratching your head as to why there would be a difference, it's because the CPI for housing materials has increased faster than overall CPI. The former is neutral; the latter negative.

This article was written by

New Deal Democrat profile picture
New Deal democrat As a professional who started an individual investor for almost 30 yeas ago, I quickly focused on economic cycles and the order in which they typically proceed. I have been writing about the economy for nearly 15 of those years, developing several alternate systems that include mid-cycle, long leading, short leading, coincident, lagging and long lagging indicators. I also focus particularly on their effects on average working and middle class Americans.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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