The highs and lows in the numbers and values of new construction
Do we spend more on new houses than we used to? It can feel like it, especially because houses have become larger and available land has become more scarce. For a quantitative answer to this question, we can use FRED’s data on the number of new houses being sold across the U.S. and the median value of those houses. Multiplying these two indicators yields the total value of all houses sold in a given period. (Well, at least approximately: The mean would give us a better measure, but if the price distribution of new houses doesn’t change too much, this method will do.) Now, prices and incomes have generally increased, so we want to divide the total value of all houses sold by nominal GDP. The result is the series that we display in the graph above, with data normalized to 100 for the start of the sample.
What do we learn? 1) We spend relatively less on houses now, but we’re getting back to the trend. 2) There are strong seasonal factors in the sales volume of new houses. 3) Recessions are really bad for new house sales. 4) The U.S. spent historically high amounts for new houses just before the previous recession and then they dropped to historical lows. 5) Although this recent drop was extraordinarily severe, from a value of 183 to a value of 28 in the matter of a few years, the movements are also very large in other years and some values have doubled within a business cycle. After all, construction is known to be a very volatile sector, and this is especially true for new construction.
How this graph was created: search for “new houses sold, select the series and open the graph. Click on “edit graph” and add a series to the line by searching for median value, then again by searching for “nominal GDP.” Apply formula a*b/c. Finally, change the units ate the very bottom of the form to “Index” setting 100 on 1963-01-01.
Suggested by Christian Zimmermann.
View on FRED, series used in this post: