Housing starts are expected to increase to an annual pace of 1.022 million in tomorrow’s update for October, according to The Capital Spectator’s median point forecast for several econometric estimates. The projection represents a modest increase over September’s 1.017 million.
Compared with a trio of estimates based on recent surveys of economists, The Capital Spectator’s median projection for October is slightly below the consensus forecasts.
Here’s a closer look at the numbers, followed by brief definitions of the methodologies behind The Capital Spectator’s projections that are used to calculate the median estimate:
VAR-3: A vector autoregression model that analyzes three economic series to project housing starts: new home sales, newly issued permits for residential construction, and the monthly supply of homes for sale. VAR analyzes the interdependent relationships of these series with housing starts through history. The forecasts are run in R using the “vars” package.
R-1: A linear regression model that analyzes the NAHB Housing Market Index in context with housing starts. The historical relationship between the data sets is applied to the more recently updated NAHB Housing Market Index to project housing starts. The computations are run in R.
TRI: A model that’s based on combining point forecasts, along with the upper and lower prediction intervals (at the 95% confidence level), via a technique known as triangular distributions. The basic procedure: 1) run a Monte Carlo simulation on the combined forecasts and generate 1 million data points on each forecast series to estimate a triangular distribution; 2) take random samples from each of the simulated data sets and use the expected value with the highest frequency as the prediction. The forecast combinations are drawn from the following projections: Econoday.com’s consensus forecast data and the predictions generated by the models above (VAR-3, ARIMA, ES and R-1). The forecasts are run in R with the “triangle” package.