New research pinpoints the timeline for next U.S. recession
In 2007, subprime mortgages chipped away at the U.S. housing market. The Great Recession soon followed; global economies suffered as U.S. markets tanked.
According to BuildFax — the provider of property condition and history insights for insurance, financial and real estate institutions — U.S. housing authorization activity has one of the highest correlations with each economic downturn between 1961 and 2018.
The latest figures don’t bode well for the U.S. housing market — and quite possibly the U.S. economy and beyond.
Supply and demand
Single-family housing authorizations decreased by 0.95% from November to December 2018. Year-over-year, December single-family housing authorizations decreased by 3.76%. It was the second consecutive month that housing authorizations declined. Unlike in November, according to BuildFax, the trailing three-month outlook (October to December 2018) compared to the same period last year is now also turning downward with a 1.22% decrease.
Following November’s blanket declines, new and existing housing activity decreased in December. (Photo: BuildFax)
Existing housing maintenance and remodeling, which encompass work on existing structures, also experienced the second consecutive month of decreases across most indicators. In December 2018, maintenance volume decreased at a year-over-year rate of 10.71% and maintenance spent decreased by 8.03%.
Existing remodel volume — a subset of maintenance that includes renovations, additions and alterations — decreased at a year-over-year rate of 15.64%. However, remodel spending, a consistently volatile subsection, increased by 5.97% in December. This increase was likely a nod to 2018′s high materials and labor cost resulting from increased tariffs and the effects of recent natural disasters.
Simulating the next recession
A BuildFax simulation suggests the likelihood of a recession will almost double between 2019 and early 2020. This assumes single-family housing authorizations will continue to plateau with an annualized growth rate of just 2%.
The probability of a recession over time is listed below:
- 1-month: 23%
- 3-month: 30%
- 6-month: 30%
- 12-month: 43%
“We’ve been tracking single-family authorizations daily for a more granular understanding of whether a decline might be on the horizon,” said BuildFax CEO Holly Tachovsky. “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. 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.