Monday, November 2, 2009

Housing starts -- looking through the noise

Much has been said regarding the nascent recovery in housing and home prices due to rebounding prices and activity.   Unfortunately I think the popular media is only looking at the very seasonal activity and extrapolating the data incorrectly.  The Big Picture blog (2009, October 25)  astutely shows the details of this seasonality.  As you can see from their graph, it is much better to look at the 12 month moving average of housing starts to extract the true trend.  The average continues to drop, although the rate of decline is slowing. 

In short, don't go hopping up and down like a bunny on one month's housing data, you need to look at the 12 month average to divine what is really happening.

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