How concerned should we be?
|The difference a year makes
Recent data quantify housing cooldown (year-over-year changes).
Sure looks like a downturn to me.
Even so, Dave Altig at Macroblog , , another source that’s always worth reading, thinks the gloom and doom has been overdone. Dave notes that even with a drop back to 2003 levels, home sales per person are still at historically high levels, a point also noted by Bizzyblog and some Econbrowser readers. I must say that I don’t take much comfort in that. The bigger the preceding surge in construction, the bigger the overhang that might now have to be worked off. I certainly don’t see much in the historical record to suggest that the more dramatic the prior boom, the more modest was the subsequent bust. Just the opposite– 1929 (the year the Great Depression began) started out as a tremendous boom, as did 1973, which preceded the biggest U.S. recession since World War II.
Dave offers some other observations that give me more comfort. First, he notes correctly that none of us are really certain what’s in store, given the great challenges in making these forecasts. Surely the responsible statement to be making in the current situation is that there is a significant downside risk, which may or may not materialize. Second, Dave along with the always-excellent Tim Duy
notes the potential of other sectors such as nonresidential investment to pick up some of the slack from a weak housing market. Third, Dave observes, as did I, that things so far are no worse than in 1994. If we do see a replay of that “soft landing” that successfully controls inflation, then, as Dave noted last January, Bernanke could come out looking quite the hero.
I certainly hope that’s what happens. But will it? I don’t know.