The housing market is one of the major drivers of the U.S. economy. If you add up all of the money Americans spend on building houses, buying houses, renovating and renting houses, it adds up to one-sixth of GDP. That's why two of the clearest indicators of a pending recession are sharp drops in both new housing construction and home sales.
Economists pay close attention to the number of housing "starts" or new housing construction projects breaking ground each month. An increase in housing starts means that builders are confident that the economy will continue to perform well over the next six months and that consumers will have the available cash to buy new homes.
Other housing indicators act as a barometer of consumer confidence, like the monthly reports of pending home sales and existing home sales. When consumers feel good about their future job security and earning potential, they are more likely to make a big financial plunge like buying a new home. When the worry about layoffs and stock market declines, housing sales numbers go down.
Looking back at housing data since 1960, housing starts have decreased 25 percent on average before each recession.