Back in the late summer of last year, perhaps the most frequent question we were hearing from clients was: What’s going on with the housing market?—i.e., the economy was performing extremely well, but housing activity was taking a nosedive. In our Economics Weekly: What's Down With Housing? from September 7, 2018, we concluded that the weakness was more of a temporary pause following very hefty house price appreciation, rising real interest rates, and to some extent the recent tax changes in some select states. This proved to be the case, and through the early part of this year, housing has experienced a mini-recovery in activity. But now, with this week’s housing starts data for June revealing a second straight month of weakness, coupled with the fact that we are now later in the cycle, and housing is a traditionally early cycle performer, eyebrows are starting to be raised. Hence, in this week's Economics Weekly, we are once again taking a snapshot of the current housing situation, with the conclusion that a continued moderate recovery in housing is still the base-case scenario.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.