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

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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.