Will home sales surge this year?

Date posted: March 17, 2011

The housing market has been at the core of the recession. Declining home sales and prices have been, perhaps, the main reasons why this recession was so bad. But at least one economic analyst has optimism for home sales this year. N.C. State University economist Mike Walden explains why.

“Well, this analyst made some headlines recently … because what he said was that home sales were actually going to surge this year. And he based it upon a long-run correlation between home sales and auto sales. That is to say, over the last 30 years the two have moved very, very closely — very, very tightly — together. And so the bottom line is that we have seen auto sales rise, and indeed they have risen about 20 percent over the last year, from an annual rate of 10 million a year to an annual rate of 12 million.

“His argument is, ‘Well, look, people are buying cars. They are also going to buy houses. And so he used that correlation to forecast — again, this is what made all the splashes in the news — that home sales were going to jump a robust 30 percent this year.

“Now other economists are very skeptical. They argue that, yes, indeed that correlation between auto sales and home sales exists and did exist in the past, but we have never had a period like we have now in the housing market, where housing prices are actually going down. And, indeed, the latest data show they are still going down. And so when you combine that effect whereby home buyers may say, ‘Well, I’m going to wait until later ’til the price is lower.’ With still the very troubled job market, many analysts are saying, ‘Look, we may get a little bit of uptick on home sales, but nothing like 30 percent.’”

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