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Home Publications Blogs Beat the Press Contrary to What You Read in the Washington Post, House Sales Have Recovered

Contrary to What You Read in the Washington Post, House Sales Have Recovered

Friday, 23 May 2014 05:27

The continuing weakness of the housing market is a regular theme of the business media. They seem as eager to display their ignorance now as they were during the housing bubble years. 

The Post gave us another item in this series in an AP article on existing home sales in April, which ran at 4.65 million annual rate, according to data from the National Association of Realtors. The fourth paragraph told readers:

"Nearly five years into the recovery from the Great Recession, real estate sales have yet to return to their historic averages."

If we go back to the pre-bubble years of the mid-1990s, we find that existing home sales averaged just over 3.4 million in the years from 1993-1995. Adjusting this figure upward by 20 percent for population growth would still get is to less than 4.2 million, well below the sales rate reported for April.

New home sales are still running below historic averages, so that would bring the total sales close to their pre-bubble levels but there is not much of a case that they are lower than what should be expected. Furthermore, if we consider the aging of the population, the excuse given by many economists for the drop in labor force participation, we should expect a drop in the ratio of home sales to population.

Older people less frequently buy homes than younger people. It is perhaps an inconvenient truth for economists, but the population that comprises the potential labor force is the same population that comprises the group of potential home buyers.  


Comments (8)Add Comment
Dean is the only one
written by Dave, May 23, 2014 8:18
I think Dean is the only economist making this known. It is news to me. I don't watch the numbers, and so this is important information to me.

Given that, should it not be obvious that the housing market was just a symptom of larger economic problems? We seem only to be able to reach full employment though excessive credit to poorly paid workers. Hmmm...

An Old Story
written by Larry Signor, May 23, 2014 8:33
Older homeowners eventually all sell (see Keynes: in the long run...). We may be at a demographic intersection where the constituent ratings that compose GDP are re-aligning to represent a new demographic as well as a skewed income distribution. In brief, housing probably is becoming a lesser proportion of GDP than it has been historically.
income elasticities....
written by pete, May 23, 2014 10:05
Yes Larry, I did see a study recently showing that housing percentages are a declining function of income. This is true cross sectionally, which is usually where you get long run elasticities. Similarly, health care has a positive income elasticity. The more we make the more we want to be healthy and enjoy it.
New Home Sales Still Less than 50 Years Ago
written by Paul Mathis, May 23, 2014 10:34
Today's chart from Calculatedriskblog.com tells the story clearly:

April’s sales pace of 433,000 was below the year-earlier rate of 452,000 and the sales pace averaged more than 900,000 new single-family homes over the decade leading up to a peak in 2005.

Not exactly recovered.
written by skeptonomist, May 23, 2014 11:50
Existing home sales are good for realtors, banks and movers, who get big cuts of the transactions, but otherwise not a big boost to the economy. More important are new home sales or housing starts, and you need to look at the per capita rate:


Starts are definitely going back up, but at the current rate of growth it will be years before even the recession level of 1991 is reached. And how high should the home building rate go? There has obviously been a strong downward trend after the peak of 1950. Home ownership may be near saturation level.
written by PeonInChief, May 23, 2014 1:15
First: Dave, Dean reads tons of stuff and keeps track of it, so that we don't have to, and can devote ourselves to trashy mysteries, gardening and other more fun activities.

One reason that new home sales aren't recovering may be demographics, in that most retiring boomers aren't going to buy new houses. They're more likely to stay in their current homes or downsize. Almost all new housing construction is for the "move-up" market.
RE Markets Are Local
written by Jim Johnson, May 23, 2014 2:40
When reporting on real estate markets, it's important to remember that they are local. That said, not all markets have recovered. In example, the coal mining regions of PA and WV are still depressed. The reason is that the inventory of existing homes has not been reduced significantly due in large part to unemployment in these regions being exacerbated by layoffs due both to regulation of coal mining, and displacement of coal as a fuel by natural gas. The exaggerated claims of the drilling industry notwithstanding, the jobs related to drilling are being filled primarily by a kind of temporary migrant workforce that moves from pad to pad.

Significant anecdotal evidence also suggests that the markets in areas of the Marcellus shale that are being drilled are beginning to show signs of declining property values and slower sales, due to environmental concerns--and the difficulty of getting insurance for properties near drilling/pad sites.
Dean, respectfully I think you are missing the correct comparison
written by New Deal democrat, May 24, 2014 12:48
The Millennial generation is the "echo boom" and is adding 1,000,000 new entrants a year into the apartment and home buying population. Your comparison with the Gen X years I do not believe is apposite.

I wrote extensively about this earlier this week, so I'll just link to my post: http://community.xe.com/forum/...c-tailwind
Click on the link for the data on live births per year. The apposite comparison is to the late 1960s and 1970s. By that standard, housing hasn't really recovered much at all.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.