The Evolution of National and Regional Factors in U.S. Housing Construction

Abstract

This paper presents and describes a newly available data set on monthly building permits for U.S. states from 1969-2007. These data are used to estimate regions of common housing construction activity. Building permits exhibit substantial comovement across states, and these comovements are modeled as being associated with a national factor, a regional factor, and a state-specific disturbance. When stochastic volatility is added to this state building permit dynamic factor model, the decline in the volatility in state permits is found to be associated with a sharp decline in the mid-1980s in the volatility of the national factor and with a slow, steady decline in the volatility of the state-specific component, with these two sources contributing approximately equally for a typical state. The timing of the sharp reduction in volatility of the national component coincides with break dates previously identified for the Great Moderation in U.S. economic activity.