The Lehmann
Letter (SM)
Housing has not
snapped back as it did following past recessions. In those cases the Fed
contributed to the downturn when it raised interest rates to ward off
inflation. The Fed let interest rates fall as soon as inflation eased, and
housing swiftly recovered.
Think of the
Fed as a rider on a frisky horse: Pulling back on the reins whenever inflation
threatened and letting the reins dangle when the inflationary threat passed. The
housing horse would gallop and stop, then gallop and stop.
In the chart you
can see home sales plunge and surge with each recession and recovery. (The 2001
dot-com bust was the exception: Home sales did not plunge during the recession
but definitely surged with recovery.) You can also see that home sales have
fluctuated in a low range since the 2009 recession.
There has
been no snap-back in sales because the popping of an asset-bubble generated the
recent debacle. The horse ran and ran until he collapsed. Now the Fed lets the
interest-rate-reins dangle, but the horse needs a long rest before he will run
again.
Existing Home
Sales
(Click on
chart to enlarge)
(Recessions
shaded)
Today the
National Association of Realtors announced that existing home sales rose “…to a
seasonally adjusted annual rate of 4.62 million in April from a downwardly
revised 4.47 million in March…”
Pin those
numbers on the chart. Does it look like a recovery to you?
(To be fully
informed visit http://www.beyourowneconomist.com/)
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