Monday, October 25, 2010

Home Sales

The Lehmann Letter (SM)

This morning the National Association of Realtors reported that existing-home sales surged 10% in September:

Lawrence Yun, the Realtors' chief economist, commented: “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions.”

That assessment, i.e.”…a gradual rising trend…,” is right on. Once upon a time, in the housing slumps of the 1970s and early 1980s, the Fed's high-interest-rate-policies generated periodic housing contractions. Subsequent low-interest-rates would generate explosive housing recoveries. This time, from 2002 through 2009, we had an asset bubble that burst without Fed intervention. Since high interest rates didn't cause the recent problem, low interest rates won't do much to generate a recovery. That's why growth will be gradual, not explosive.

Home Sales

Click on chart to enlarge.)

Recessions shaded

This letter has said - over and over again - that the real-estate collapse was the recession's Ground Zero. The Realtors reported 4.53 million sales in September. Connect that dot to the line on the chart and you can see what it will take to put Ground Zero behind us. Mr. Yun’s assessment is sober and realistic.

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

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