“The boom is over.” So says David Lereah, National Association of Realtors’ chief economist, regarding the extraordinary bull market that is, or at least has been the residential housing market. In comments published in today’s Wall Street Journal, he observes, “Investors are pulling out in a lot of the nation’s hot markets, and that’s adding to the cooling.”
Some fresh data updates lend support to Lereah’s analysis. On Monday, the Census Bureau reported that sales of new houses slipped 5% in January from December’s tally, and the fall was evident across the country.
Optimists were quick to counter that new home sales are but a small slice of the total of house transactions. A far larger sample of residential sales trends can be found in the monthly count of existing home sales. But that too showed weakness, when the January update was released yesterday by the National Association of Realtors. Total existing-home sales–including single-family, townhomes, condominiums and co-ops–backtracked by 2.8%. What’s more, sales were 5.2% below the 6.92 million-unit level in January 2005, according to NAR.

Ok, sure. Sales were clearly weak in January. But, hey, it’s winter, and demand will perk up once warmer weather arrives. Who wants to go home shopping in January? Relatively few, or so conventional wisdom says.
But if there’s reason to think a housing slowdown, or something worse, isn’t coming, the first choice for pointing to quantitative support isn’t the latest revision to the profile of the fourth-quarter economy, as defined by annualized inflation-adjusted growth in gross domestic product. Yes, yesterday’s release of the so-called preliminary estimate of GDP for 2005’s fourth quarter was higher than the earlier guesstimate–1.6% v. 1.1%. But 1.6% is still a long way from the 4.1% logged in the third quarter. To the extent that a bubbling economy drives the housing market (or is it the other way around?), there’s reason to wonder what comes next.
But getting from the proverbial here to there remains a challenge when it comes to perusing economic data in the 21st century. Nothing is quite what it seems, and so interpretations of what’s happening, and what’s lurking around the corner are perennially up for grabs.
Indeed, the economy and the housing market may be showing signs of fatigue, but it’s hard to reconcile that profile with today’s report on fourth-quarter home prices from Office of Federal Housing Enterprise Oversight. OFHEO advises that the average U.S. home price advanced by 2.9% in the fourth quarter of 2005. Although that’s down a bit relative to recent history, but compared with recent years it’s nonetheless impressive. Indeed, a 2.9% rise translates into an annualized appreciation of 11.4%. Even adjusting that for inflation, it’s clear that the housing prices were running faster than the overall economy. Nice work if you can get it, but it can’t last.
Higher home prices and a slowing economy? Sure. What’s that? You think that’s a mismatch? Really? Well, maybe you’re not in tune with all the vicissitudes and secret hand signals of economic illumination in the new new new economy. But don’t feel bad. We’re unenlightened too. But we’re hoping to improve ourselves, and so we’re bursting with questions.
That starts with, what exactly what does the data imply for 2006? Also, is the housing market really slowing? If so, by how much? And then the $64,000 question: What might the impact of a slowing housing market be on the wider economy? Or, perhaps we should rephrase that, What effect will a slowing economy have on the real estate market? We could ask questions all day. If only we could find the confidence to accept one or two answers.