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New to FRED: Manufactured home prices

Single and double wide data!

FRED has just added data from the U.S. Census Bureau for an additional type of real estate: manufactured homes. This market is separate from and smaller than the more popular and widely watched single-family homes market, but the price data for manufactured homes have several interesting characteristics.

First, manufactured homes are more uniform than other homes. For example, single-family homes come in a variety of sizes, they have tended to become larger over time, and the size composition of single-family home sales may vary from one period to another. Manufactured homes come in two standard sizes, single and double, and separate statistics are collected for each.

Second, the price of manufactured homes includes only the house—that is, the land is not part of it. This should make the price more informative. However, the market for manufactured homes is thinner, which makes measurements less precise and thus more volatile.

The graph above compares the prices of manufactured homes (single and double) with two popular single-family home price indexes. It’s striking that their trends are quite similar, despite the differences noted above. It’s a coincidence, though, that the levels of the single-family home price indexes line up with the manufactured home series. (In the graph, the value 100 could be any year.) It’s also clear, as noted above, that the price of manufactured homes is more volatile, as the market is likely too thin.

How this graph was created: Start from the release page for manufactured homes, click on the link to the release table with prices, check the two national series, and click “Add to Graph.” From the “Edit Graph” panel, use the “Add Line” tab to search for “house price” and select the S&P/Case-Shiller National series and then the All-Transaction House Price Index. From the “Format” tab, make sure the scale for these series is on the right. Finally, restrict the sample to start when all data are available.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CSUSHPINSA, SPDNSAUS, SPSNSAUS, USSTHPI

Is the housing price-rent ratio a leading indicator?

Economic forecasters are always on the lookout for variables that can help predict upcoming recessions. One such variable that has gotten some recent attention is the housing price-rent ratio. As this ratio becomes higher, the rental option becomes more attractive. If it rises high enough, some households might switch from owning their homes to renting them; then the demand for owner-occupied housing would fall. The result is a contraction in the housing market that can have adverse effects on the entire economy. This narrative seems to match well with the behavior of the housing price-rent ratio leading up to the Great Recession. So if the housing price-rent ratio is on the rise again, does that mean it’s cause for concern? Let’s try to evaluate whether the housing price-rent ratio is a reliable leading indicator by graphing it, with data going back to 1975.

To be considered a leading indicator, a variable must change in sign prior to the beginning of each recession. (Recessions, as defined by NBER, are shown by gray shading.) The Great Recession started in December 2007. As we can see, the housing price-rent ratio reached its peak in April 2006, approximately two quarters prior to the start of the recession. In other words, the housing price-rent ratio seems in this case to have been a leading indicator. But for a complete evaluation, all the recession episodes must be examined. In January 1980, the U.S. economy suffered from double-digit inflation. To solve that problem, Paul Volker essentially created a recession. This recession began in January 1980. The housing price-rent ratio peaked in the second quarter of 1979 and then declined. It could again be argued that the price-rent ratio predicted this recession. In July 1981, another recession started. For this recession, whether the housing price-rent ratio correctly indicated a coming recession is less clear. The housing price-rent ratio didn’t suggest an upcoming recession in March 2001, as the ratio steadily increased.

A second condition for a variable to be a leading indicator is that it doesn’t suffer from the false-positive problem. This problem would occur when the house price-rent ratio decreases but no recession occurs. There are a number of instances when the housing price-rent ratio does suffer from this problem.

So it’s not clear whether the housing price-rent ratio qualifies as a leading indicator: It fails to identify some recessions and gives false-positive readings at other times. But in the two major recessions since 1975 (the 1980 and 2007 recessions), the housing market played a leading role; so, these recessions were predicted correctly by the housing price-rent ratio.

How this graph was created: Search for and select the series called “All-Transactions House Price Index for the United States.” Then, in the customize data option of the “Edit Graph” menu, search for and select the series called “Consumer Price Index for All Urban Consumers: Rent of primary residence.” Finally, in the formula tab, enter a/b to divide the home price index by the rent price index.

Suggested by Ryan Mather and Don Schlagenhauf.

View on FRED, series used in this post: CUUR0000SEHA, USSTHPI


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