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Housing activity declines, recession probability increases

Downward trend could be a troubling sign of a looming economic downturn

Single-family housing authorizations decreased 0.95% in December, falling for the second consecutive month and down 3.76% year over year, according to a recent report by BuildFax, a property condition data service provider.

Single-family housing authorizations represent building permits requesting permission to commence construction. By contrast, housing starts signal that construction has already begun. 

The Census Bureau will not be releasing new data on housing starts due to the government shutdown, making housing authorizations a key indicator of the market's current health.

Housing authorizations are also an early indicator of a recession, according to BuildFax, which said that based on the new data, the probability of a recession could double between 2019 and 2020 if trends persist.

Assuming a number of indicators follow a projected pattern, BuildFax said there is a 43% probability of an economic recession between 2019 and early 2020.

BuildFax CEO Holly Tachovsky said there has been lots of talk about the potential for an economic downturn as people watch for signals in the market.

“We’ve been tracking single-family housing authorizations daily for a more granular understanding of whether a decline might be on the horizon. We’ve also been monitoring interest rate activity, changes to home prices and housing supply growth to further gauge any impending shift in the economy,” Tachovsky said. “While this is only the second consecutive month of declining indicators, this shift is in stark contrast to the white-hot housing market that the U.S. has experienced since 2013.”

The report also revealed that existing home maintenance and remodeling activity declined for the second consecutive month in most categories.

Maintenance volume decreased 10.71% year over year while maintenance spend decreased 8.03%.

Existing remodel volume, a subgroup of maintenance that includes renovations, additions and alterations, decreased 15.64% year over year.

But remodel spend, which BuildFax said is often volatile, increased 5.97% in December, which the company attributes to an increase in material and labor from tariffs and recovery from 2018’s natural disasters.  

BuildFax COO Jonathan Kanarek said it’s worth keeping an eye on single-family authorizations in the year ahead.

“Under current conditions, we anticipate single-family housing authorizations to be a must-watch indicator in 2019 and as we move into 2020,” Kanarek said. “However, more than a few critical economic factors must align before a recession is imminent. More so now than in months prior, insight into the daily movements of housing indicators provides a stronger understanding of how the market is expected to move, and how fast it will move in a specific direction.”

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