The FRED Blog has discussed how mortgage interest rates affect decisions in the housing market and how the construction of new housing slowed down after the 2007-2009 Financial Crisis. Today we examine the cycles in sales and new construction.
The FRED graph above shows the percent change from the preceding year in the quarterly number of new single-family houses sold (the orange bars) and in the number of housing starts (the blue bars), which represent new single-family homes under construction. You do not see much of a difference between the two sets of bars because growth in house sales frequently coincides with new housing construction—a.k.a, housing starts. That suggests that a booming (or contracting) housing market rapidly increases (or decreases) new residential building activity.
But building a new house is a time-consuming endeavor and it takes several months to finish a construction project and put a new house on the market. The FRED graph above compares growth in housing starts (again in blue) to growth in the number of single-family homes for sale (the red bars). Now you can see each set of bars more distinctively because there is a lag between the timing of expansions and contractions in new home starts and the listing of homes for sale. On average, the peak in the number of homes put up for sale is recorded approximately a year after the peak in new building activity.
How these graphs were created: Search for and select “New One Family Houses Sold: United States.” From the “Edit Graph” menu, use the “Add Line” tab to search for “Privately Owned Housing Starts: 1-Unit Structures.” From the “Edit Line 1” tab, select units “Percent Change from Year Ago” and click on “Copy to all.” From the “Modify frequency:” drop-down menu, select “Quarterly.” Repeat this step for Line 2. Last, from the “Format” tab, select “Graph type: Bar” and choose colors to taste. For the second graph, repeat the above steps but add “New One Family Homes for Sale in the United States” as the second line.
Suggested by Diego Mendez-Carbajo.