Housing Sector Behavior through the Business Cycle

Housing activity experiences dramatic swings that it often counts more in overall economic movements than it might suggest.

Relevant statistics:

new and existing home sales

residential construction activity

the inventory of unsold homes on the market

average or median price of homes (sometimes recorded by type of housing unit and sometimes as the price per square foot or square meter).

Housing sector is especially sensitive to interest rates.

Home buying and consequently construction activity expand in response to lower mortgage rates and contract in response to higher mortgage rates.

Indicators of the cost of owning a house: compare household incomes with the cost of supporting an average house (price + expense of a typical mortgage).

Commonly, housing prices and mortgage rates rise disproportionately as expansionary cycles mature, relative housing costs increase, household incomes rise. House sales slowdown, cyclical downturn first in buying and then, as the inventory of unsold houses builds, in actual construction activity.