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
* combined new and existing home sales