Tags: housing

Housing Data Show Main Street Recession is Real

By Hans Parisis
Thursday, 25 Sep 2008 03:25 PM Current | Bio | Archive

The U.S. Census now reports that sales of new, single-family houses in August 2008 were 11.5 percent below the revised July rate of 520,000, and 34.5 percent below the August 2007 estimate of 702,000.

New home sales is an important leading indicator of what the economy is doing and is heading for. Of course, you have to watch it over a longer time period.

To demonstrate this, the first graph below shows new home sales (red line) vs. recessions (blue vertical markers) for the last 45 years. Since end-2005, new home sales have fallen dramatically and confirm the real recession we're already in since end 2007, one that Main Street perceives very well.


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The next graph, below, shows new home "months of supply" (red line) is at 10.9 months, and how that oversupply spikes during recessions (blue markers). As new home sales continue to fall quickly, inventory is only marginally lower from its peak of 11.2 months in March 2008.


Click for Larger Image

By the way, the all-time high for months of supply is 11.6 months, in April 1980. It's also important to keep in mind that new home inventory does not include many condos, especially high-rise condos, of which, in some cities like Miami, tens of thousands were recently built.

You can expect that in areas with significant high-rise condo construction you will have much higher inventory levels. All this also confirms the "real recession" situation we're in, the recession Main Street has seen since the end last year.

Usually, new home sales rebound fairly quickly following a bottom (as we see in the first graph), therefore it's an important leading indicator. Unfortunately, I still expect a prolonged and deep recession, and I believe that new home sales might fall even farther.

Today's report on new home sales shows a very grim outlook as a leading indicator for the economy. And I expect even worse for existing home sales and existing home prices.

We will need all the seatbelts we can find because it will, unfortunately, get even worse before it could get better within, at least, 18 months. That's somewhere in 2010.

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HansParisis
The U.S. Census now reports that sales of new, single-family houses in August 2008 were 11.5 percent below the revised July rate of 520,000, and 34.5 percent below the August 2007 estimate of 702,000.New home sales is an important leading indicator of what the economy is...
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2008-25-25
 

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