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Housing starts

A “housing start” is a new housing unit for which construction has begun. The graph above shows monthly housings starts in the U.S. for the past 20 years (Nov 1998 to Nov 2018) separated into three groups: single-family houses, houses with two to four units, and houses with five or more units. Note that this statistic pertains to the number of housing units and not number of houses/buildings.

The graph shows that housing starts dropped during the past recession and then increased again. That’s no surprise. However, single-unit starts have not reached their pre-recession levels. Initially, the reason was thought to be that households were either finding it more difficult to access mortgages or getting cold feet when considering the potential pitfalls of homeownership, such as the large number of foreclosures during the recession. Now, ten years after the recession, we may have to find another explanation for this change, which appears to be more than just transitory.*

Even if it doesn’t provide a definitive explanation, the graph below makes it easier to see this change by showing the percentages of the total number of units started.

*Maybe the new generation is less interested in single-family homes in the suburbs, which would be consistent with the decline in driving that we observed in a recent blog post.

How these graphs were created: For the first graph, search for “housing starts” and you should find all the seasonally adjusted series on the first page of results. Select them and click “Add to Graph.” For the second graph, take the first, go to the “Edit Graph” panel’s “Format” tab, and select graph type “Area” with stacking “Percentage.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: HOUST1F, HOUST2F, HOUST5F

How to measure inflation expectations

What level of inflation do people expect over the next several years? We could look at some surveys to try to answer this question, but nothing beats market measures where participants have some skin in the game. One such method of measuring inflation expectations is to compare how Treasury markets price two types of bonds: “normal” bonds—with a constant nominal interest rate—and “inflation-indexed” bonds—with a yield that includes realized inflation. One can tease out inflation expectations by subtracting the real bond yield from the nominal yield. This is the so-called break-even inflation that we show in the graph above for all available maturities.

The graph shows that these expected inflation rates fan out at particular times, typically downward. And, every time, the shorter maturities seem to have the strongest reactions. This is simple arithmetic. For example, a 10-year expectation also contains the 5-year expectation; and, as long as expectations average out in the long run, the shorter-term expectation will be more variable. An exception would occur if the market expects “normal” inflation in the next five years, but “abnormal” inflation during the five years thereafter. That’s very unlikely to happen, at least in terms of expectations.

How this graph was created: Search for “break-even inflation,” select the series, and click “Add to Graph.” From the “Edit Graph” panel, open the “Format” tab and move the series up or down to order them chronologically in the legend.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: T10YIEM, T20YIEM, T30YIEM, T5YIEM, T7YIEM

Saving for Christmas

Back in the day, banks offered Christmas savings accounts, which allowed folks to regularly set aside some funds that would become available in time for Christmas purchases. The scheme is similar to certain types of education savings or retirement savings accounts that encourage saving for a particular purpose and impose penalties when one deviates from the goal (like withdrawing money early). These Christmas accounts have disappeared, as they were costly to banks and credit cards have clearly become popular substitutes.

FRED has some data on these Christmas savings accounts. The data points are a bit scattered throughout the years, though, much like ornaments on a tree. Along with the bright colors, this makes for quite a display! But each year has data points for June and December (at least), so we can see how the account holdings increase linearly throughout the year and reset at Christmas.

How this graph was created: Search for “Christmas savings,” select the series, and click “Add to Graph.” Then go to “Edit Graph”/”Format” to use FRED’s new palette, which lets you customize graphs with all your favorite festive colors.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: TIIPCCSSA

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