Why the Housing Market Points to Very Weak 2015 Economy
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Why the Housing Market Points to Very Weak 2015 Economy
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by Michael Lombardi, MBA
The chart below shows us that between April and August of this year, home prices in the U.S. declined. The S&P Case-Shiller Home Price Index is only released 60 days after each month’s end, so while data for September and October are not yet available, based on what I’m about to tell you, five years after the Great Recession, the U.S. housing market is on shaky ground again.
According to the National Association of Realtors (NAR), in the month of September, first-time homebuyers accounted for only 29% of all sales of existing homes in the U.S. housing market. First-time homebuyers have accounted for 30% or less of existing home purchases in 17 of the past 18 months. (Source: National Association of Realtors, October 21, 2014.) In a “healthy” housing market, historically, first-time homebuyers have accounted for 40% of existing-home sales.
Chart courtesy of www.StockCharts.com
And new-home sales are in a slump, too. The chart below shows how many new homes have been sold since 2004. You will note that since 2013, new-home sales have been flat and they are nowhere near their 2005/2006 levels.
Chart courtesy of www.StockCharts.com
And those that are closest to the housing market are turning pessimistic. The National Association of Realtors Confidence Index (RCI), an index tracking real estate market conditions and realtors’ expectations, dropped to 51 in September from 60 in August. (Source: National Association of Realtors, October 21, 2014.)
Why does the housing market matter?
Economists follow the housing market to see where consumer spending is headed. If more homes are being sold, it means consumption will eventually increase as homeowners (especially new homebuyers) buy furniture, lawnmowers, and other household goods.
But, with the current housing market data showing signs of stress, new homebuyers remaining sparse, and the professionals showing concerns, it is unrealistic to expect consumer spending will be robust in 2015.
Dear reader, consumer spending is critical to the U.S. economy, accounting for two-thirds of the U.S. gross domestic product (GDP). The housing market is just one place that suggests sluggish economic growth. The third-quarter 2014 earnings reports of major American companies, like International Business Machines Corporation, Amazon.com, Inc., Wal-Mart Stores Inc., McDonalds Corporation, American Express Company, The Coca-Cola Company, and more, also point to a weak 2015.
Now that the Federal Reserve has ended its quantitative easing (QE)…now that the punch bowl has been taken away…and now that it is obvious the economy is stalling here in the fourth quarter of 2014, the huge top the stock market put in this year might be here to stay for years—or until the next QE is announced.
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