As Goes Housing So Goes The Economy - Even More So Now?
We know that the behavior of the residential real estate sector tends to lead the behavior of the overall economy. That's why the folks at the Conference Board stuck housing building permits in the index of Leading Economic Indicators rather than the coincident or lagging indices. Might it be in this cycle that the behavior of the residential real estate sector is even more important than other cycles? The chart below suggests, "Yes." The dollar volume of new and existing single-family homes in 2005 represented 16.3% of nominal GDP - a record high for the 1968 - 2005 period. The median value of this statistic is 8.4%. John Berry of Bloomberg has written a story today saying that "Federal Reserve officials are watching warily to see whether the housing retrenchment that began late last year will remain modest or turn into a rout that could damage the economy severely." Investors would be wise to do the same.
Dollar Volume of Single-Family Home Sales* / Nominal GDP
percent
* combined new and existing home sales
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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