The inversion of the yield curve — when long-term interest rates drop below short-term interest rates — a couple of weeks ago was seen as a warning sign to many that another recession was looming. But Friday morning’s housing start data means we shouldn’t sound the alarms just yet, according to Odeta Kushi, the deputy chief economist at First American. “There are many factors to consider beyond the inversion of the yield curve when determining recession risk,” Kushi said. “Single-family housing starts have been a more reliable indicator because they are a reflection of both homebuilder and consumer confidence.” “While in recent months housing starts have slowed, July’s 1.9 percent year-over-year gain in single-family housing starts demonstrates homebuilders remain confident,” Kushi said. In the past 40 years, a year-over-year decline of 20 percent or more in single-family housing starts has preceded all but one — in 2001 — of the five recessions. Conversely, the yield curve has inverted 36 times since over the last 40 years, with only five recessions. Therefore, housing starts as a recession indicator was right 80% of the time, but the yield curve inversion gave a false recession signal 90% of the time! See more here: A Recession Does NOT Equal a Housing Crisis.
Full Article here: Housing start data spells good news for recession fears: Economist
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