Forecasts of US housing starts: assessing the usefulness of nowcast data

ABSTRACT

This study focuses on the current-quarter and one – through four-quarter-ahead Federal Reserve forecasts of housing starts. The aim is to assess the usefulness of nowcast data (measured by the current-quarter forecasts) for predicting housing starts one through four quarters ahead. Specifically, we use the nowcast data to generate the one – through four-quarter-ahead nowcast-based forecasts. For 1985–2016, the Federal Reserve and nowcast-based forecasts (while outperforming the naïve forecasts) contain useful and distinct predictive information. Combining these forecasts yields reductions in forecast errors that are larger at longer horizons. In addition, the Federal Reserve (nowcast-based) forecasts imply symmetric (asymmetric) loss. The nowcast-based forecasts, in particular, are of value to a user who assigns high (low) cost to incorrect downward (upward) moves and, thus, offer useful information for policymaking, when downward moves in housing starts are considered as early-warning signs of overall economic downturns.

KEYWORDS:

• Housing
• nowcasting
• forecast combination
• asymmetric loss

JEL CLASSIFICATION:

• R31
• E37
• E52

Acknowledgments

The author would like to thank an anonymous reviewer for helpful comments and suggestions.

Disclosure statement

This is to acknowledge that NO financial interest or benefit has arisen from the direct applications of this research.

Notes

¹ Real time and actual and forecast data are all available on the Federal Reserve Bank of Philadelphia website.