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)
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?
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