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Home Sales Trends vs Recessions

• moneymaven.io by Mike Mish Shedlock

Please consider U.S. Housing-Market Trends Suggest Recession Around Election Time, 2020.

Ten years ago, in September 2008, plunging home prices pushed Lehman Brothers into bankruptcy, fueling a financial crisis that sent the United States, and much of the world, into a deep recession.

One metric that signaled trouble in the years leading up to the crisis was an expanding gap between the growth in home prices and household income—as shown in the left-hand shaded circle above. When income can't keep pace with home prices, the latter must come down. Overleveraged home "owners" default on their mortgages, creating a housing glut that drags prices down further. Falling home values slow consumer spending, and therefore GDP growth, by way of the so-called wealth effect—that is, consumers cut spending when their assets fall in value. In the United States, according to one Federal Reserve study, consumption drops by $2.50-5.00 for every $100 decline in housing-market net worth.

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