Leading Housing Indicators Point to a Flat Economy

Yesterday Calculated Risk wrote an interesting post looking at what housing is telling us as a leading indicator of the economy:

Historically the best leading indicator for the economy (and employment) has been housing.

So here is a review of the three monthly leading indicators:

  • Housing Starts: Housing starts are moving sideways…
  • Builder Confidence: More moving sideways…
  • New Home Sales: …it would be generous to even call this “moving sideways”.

So these leading indicators suggest any growth will be sluggish and choppy.

So what are your expectations for near-term economic growth, both nationally and here in the Seattle area? I think most people would agree that the currently-available economic indicators are not pointing to another dramatic leg down, but does it necessarily follow that we are headed for a convincing recovery? I for one don’t really think so, especially when it comes to home prices.

So is flat the new up?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1

    Even the Best Case Scenario of Flat Prices

    Means the costs of maintenance, taxes, insurance(s) and lost investment interest has real estate as a longterm loss.

    Do I believe Seattle house prices will be flat? Let’s put it another equivalent way, do I believe per capita wages will remain flat with chronic population increases? Hades no.

  2. 2
    TheHulk says:

    I dont know how many people locally took on interest only/ARM loans in those crazy 2004/2005/2006/2007 seasons. If they did that, then flat wont be up for them from 2010. They needed prices to keep going up.

  3. 3
    patient says:

    Flat is down. The reason is that we have ongoing, unprecedented and unsustainable government stimulus and rescue activity. If we are flat with that it logically means that the “real” economy is down. Until the government exits all the resuce and stimulus programs we don’t know how bad the real economy is but it surely is bad when we continue to pump money into it with a flat result.

  4. 4
    AZ says:

    High unemployment, no new jobs, no raises for those that have jobs. Interest rates have to go UP at some point…..historic lows will not be sustained forever.

    This is a pause in the downward trend. The number of properties in my area for sale/short sale/foreclosure are increasing each month. Meanwhile those not desperate YET are still trying to sell at $500,000+ prices which requires a huge down payment or two wage earners near $100k, neither of which occurs nearly as often as there are those priced houses for sale.

  5. 5
    treaty says:

    Housing: Best recovery bets:

    I wonder what Moody’s track record for predictive calls like this is…

  6. 6
    Scott Weitz says:

    Flat is the new ‘government aided delusion’….this is the calm before the 2nd,and likely bigger storm.

  7. 7
    Mooe says:

    Houses are still selling in Seattle and East Side. Prices are down to 2005 levels. I see people buying when there is supposedly “good” deals. There may be slight decrease this year in single digit. Don’t expect anything dramatic in either direction.

  8. 8
    David Losh says:

    Housing got to be a leading economic indicator after WWII. It feeds into our consumer driven economy. House, car, washer, dryer, and Bob’s your uncle.
    It’s surprising to me that no one has said there is an over supply of housing.

    One night in Rabat Morocco I noticed that in all the miles of new construction housing that spread out from my hotel room there were only about six lights on. I mean miles of housing units with, obviously, no one occupying the homes.
    Building the housing units created jobs. Manufacturing all the plumbing, fixtures, and electrical added to durable goods. The economy for the country looked great on paper, but very few people could afford the luxuries.

    Even though we have people paying mortgages it doesn’t translate into them being able to afford the homes. We have created a wage slave class in this country. Housing has only been another manufactured product of the industrial age. We can now manufacture housing in a blink of an eye, so I don’t see where the economy will come from in the housing units of the future. It may become like Chevrolet vs. Ford, Toyota, and Hyundai.

    The short story is that housing can be a dead market and the economy will find something else to hype.

  9. 9
    Jonness says:

    People can draw unemployment benefits during normal times for 26 weeks. In the current climate, you can draw for 2 years. But after 2 years, millions of people still can’t find jobs, so Obama is going to tack on yet another extension in order to keep the phony recovery meme alive.

    How is this a recovery? The only thing propping this turkey up is borrowing money from China to hand out as welfare. It’s not like we invented some new kind of self sustainable model of growth. State governments are broke, and the federal unemployment fund is exhausted. Now we have to raise taxes to pay for it. What happens when you raise taxes to pay for welfare in the middle of a depression? Everybody has less money to spend.


    OK. Let’s get off that horse. Onward and downward!

    Housing tax credit on verge of expiration!

    Bernanke says Fed will stop buying MBS by end of Q1.

    Foreclosure nightmare ahead.

    Commercial RE crisis beginning to unfold will collapse business and banks and cause ongoing job losses.

    Credit contracting at highest rate since the Great Depression.


    M=1/R: the banks won’t lend. V < 1

    Consumer overleveraged.

    Government overleveraged.

    Banks overleveraged.

    Businesses overleveraged.


    House prices 25% higher than historical norms.

    Gregoire gone wild–1 cent per oz. of drinking water. Sin taxes heading off the charts.

    State goverment about to trim $3 billion in whatever fat is left after a recent $10 billion trim.

    I could go on for another hour. The point is, I seem to be missing all the good news sparking everybody else up. Oh wait. Nobody else is sparked up.

    "The Conference Board’s Consumer Confidence Index plummeted over 10 points, to 46, the lowest it’s been since last April. Consumer confidence in 1985 is normalized to 100.

    “This is just a flat-out bad report,” Tom Porcelli, senior economist at RBC Capital Markets, told Malaysia’s The Star. “I think if you’re looking for signals for consumer spending or jobs, there are no positive signals here."

    "Perhaps unsurprisingly, the unemployment situation is worsening along with consumer confidence. Today’s release of first-time filers came in at 496,000 – 22,000 more than last week, at a time when economists expected the reading to fall.

    All told, the number of first-time filers has increased 12% in the past two weeks, suggesting the path to recovery remains bumpy and dangerous."


    This time it's different. Prepare yourself and be extremely leery of leveraging up prior to knowing whether a double-dip is in store.

  10. 10
    David Losh says:

    Yes, for the Asian markets consumer confidence in the United States is a very big deal. Who else will buy Chinese products? For us here in the United States this can be a blip.

    Unemployment can be solved if our government pulls money out of the system. They should let the TARP funds be repaid, let General Motors repay, stop handing out unemployment checks, stop military spending like it’s just the cost of doing business, and concentrate on cutting the budget.

    The things we need from our government are Universal Health Care, energy, education, and transportation. We need to provide for the Public Welfare rather than propping up tired business models. This will create jobs, lower the tax burden, and let free enterprise work.

  11. 11
    3rd Generation says:

    Great report/post, Thanks!

    What did you expect with a ward healer from the South Side and a cabinet full of Goldman Gangsters who helped cause the wreck in the first place?

    Turn the power on in the FEMA camps. We’ll need them soon.

  12. 12
    Coolio says:

    The housing crisis was not un-intentional. The intended outcome is still clear — get people to walk away from their own property, once they become heavily indebted to the bankers. This is what Sun Tzu would call winning before the fight begins. It is masterful strategy and the art of war (undertaken on America’s politically powerful and wealthy middle class). The international central bankers win the battle before you even know what the hell hit you. Removing private property rights is fundamental in reorganizing the global structure in such a way as to ensure the international central bankers remain in charge for many generations to come. Powerful people with power addictions are not to be messed with. Most of you have been professionally programmed to deny what is in front of you at all costs. But you know what they say in advertising — repetition (sometimes) breaks through.

  13. 13
    Anon. says:

    RE: Coolio @ 12

    Look Coolio, most of us will probably entertain such conspiracy theories at least just to hear you out, but we’re rational thinkers. We need more evidence than just “it sounds really cool and would make a good movie plot” which is what it sounds like your reasoning could be.
    I’ve known so many people that just take whatever they hear their eccentric friend tell them, just because it sounds cool, intricate, and involved but without ever asking important questions that help them discern the truth from lie.
    What’s worse is that people like you don’t spout your claims as if they are theory, but rather as if they are fact. This is the worst kind of propaganda. You cannot prove your claims. I cannot disprove your claims. That means it’s only a theory by which we can test our future observations.
    Take it down a notch please, lest this place become overran by whackos.
    I wouldn’t mind hearing your ideas, so long as you present them objectively.

  14. 14
    Chris says:

    Having watched a few bubbles pop in my time, and watched people profit from the resulting carnage… Sometimes the best deals are to be had when no one else is buying.. There is so much doom and gloom being touted in the media and on this board, its almost an indicator in itself that it’s time to buy a house.

    A year ago you could have loaded up on stocks and made a killing.. no one wanted to be in the stock market… Everyone said DOW 2000… amazingly stocks recovered.

    Not a bad time to pick up a foreclosure or fire sale home in my opinion.

  15. 15
    Chris says:

    The time to buy is when there’s blood in the streets – the strongly-held belief that the worse things seem in the market, the better the opportunities are for profit.


  16. 16
    derek says:

    RE: Coolio @ 12

    I think you lost me on that one… I must have forgotten my tin-foil hat at home.

    Personally I think the new driver of the economy will come from green technology. I know there’s a lot of press on it but I think right now its more of a marketing/advertising tool than a sustainable push towards zero-sum environmental technology. At least on a large scale.

  17. 17
    gordonshumway says:

    RE: Chris @ 14

    You could very well be right, but housing is not a liquid market and I don’t really see the harm in waiting. For me, buying my second home comes with a ‘prove it’ mentality. Even if this is the bottom (I doubt it, but it could be I suppose), it’s not like houses are going to snap back to 2007 levels overnight. So you call this bottom, great, now watch house prices skid along the bottom for the next several months, if not years. You could buy now at the bottom, or you could buy a year from now at the bottom. If on the other hand your wrong, you get to watch your leveraged asset depreciate and hope you don’t end up under water. I’ll continue to wait and say “prove it” before I buy another house

  18. 18

    The existing homes sales figures, also south, hardly got any press. I would think that’s the more important number of the two. Does anyone know if it always gets less attention?

  19. 19

    RE: Chris @ 14
    I don’t necessarily disagree with you, but Seattle hasn’t seen the carnage that a lot of other places have. Nevada, parts of Cali, Arizona, Florida,…these places have seen What? 50-60% declines from the peak? That’s blood in the streets.
    About the stock market: Sure, if you bought stocks a year ago and sold them now, you’d have done just fine. But how many people have the discipline and balls of steel to do that? How tempting is it to sell a stock after it’s gone down? Buying at a place where you think is the bottom, what happens if the price continues to drop?

    Sure, Seattle Bubble has it’s share of folks who are ” less than optimistic” about the housing market. The mainstream media seems to have a bit of a less gloomy tone than it did a year ago, and a lot of actual statistics can be spun various ways to support one’s own opinions.

    But back to the original point:
    That’s certainly my own style, to try to get the most value for anything, whether it’s a house or a stock or a restaurant to dine in. I hate overpaying.

  20. 20
    explorer says:

    Flat is the new DOWN. Prices may have somewhat stabilized for the moment, but they were set way ahead in the years leading up crashing into the wall. The reality is, we still have bubble prices for everyone except in the high end. Higher incomes, as usual, benefit from “discounts” on items that no one else could afford to begin with.

    Defation is going to be the only factor that makes it appear the incomes of those most affected improve, due to increased buying power. However, you still need money to make money, or take advantage of a deal. That seems to go double for houses and condos, as a lot of purchases are cash right now. Again, advantage = the already wealthy.

  21. 21

    RE: Kary L. Krismer @ 18

    For no logical reason that I can think of, new home sales figures always get more airtime than existing home sales. Evidently they’re seen as more of a harbinger of things to come. Why, I can’t tell you. Doesn’t make sense to me.

  22. 22
    wreckingbull says:

    RE: Anon. @ 13 – Do you find the timing of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act of any interest? I do. I don’t think this may have been as centrally planned as Coolio suggests, but the fact remains that we have witnessed the greatest heist in the history of modern civilization. Debt is the new slavery.

  23. 23
    explorer says:

    Ira: I think you might be referring to the “hindsight is 20-20” phenominon. I have a friend who is semi-obsessed with currency trading. He always says things like: “If I would have bought that last week, I would have made 10 pips! Yet, he never seems confident enough to pull the trigger before that happens.

    So much is insider trading and knowledge today. One could argue it has always been that way to an extent, but the software operating, manipulating, and influencing the markets today makes it a crapshoot for outsiders. You can mitigate that somewhat, but it’s a full time job being teathered to your blackberry to pull the trigger when your threshold is reached.

  24. 24

    RE: wreckingbull @ 22 – The bankruptcy act didn’t do a heck of a lot, other than force debtors to reaffirm their auto loans if they wanted to keep the car. Do you think it did a lot more? Most of the income thresholds ended up not being all that different than the older system.

    The one thing it did do, that I’d forgotten about, was change the status of post-petition income in individual Chapter 11 cases. That very well might have been the reason Mastro never attempted to convert to Chapter 11.

    I don’t get the reference to the Consumer Protection Act at all. What was your thought there?

  25. 25
    anonymous says:

    RE: Ira Sacharoff @ 21RE: Kary L. Krismer @ 18 – Existing home sales may be more important for a real estate agent, but new home sales mean more for the broader economy. New home sales mean that additional people are gaining the wealth to buy a home, they generate a lot of jobs in construction, and they generate spending, both by the new owners buying furniture, appliances, ect. and the previously unemployed laborers spending. People trading used homes doesn’t signify or cause a whole lot of economic growth. More significantly, historically new home sales rebound soon before more important measures of economic health (ie. jobs) rebound.

  26. 26

    RE: anonymous @ 25 – I won’t argue with that, except the part about people moving houses not creating much economic activity. It often results in a lot of repairs, upgrades, new furniture, etc.

    The reason I think existing should be more important is because it’s less affected by odd events. For example, new houses might not be available due to weather concerns or the prior expiration of a tax credit eating up supply. Perhaps banks are forcing lower prices, thereby increasing sales.

  27. 27
    wreckingbull says:

    RE: Kary L. Krismer @ 24 – I am referring to the entire piece of legislation. http://www.gpo.gov/fdsys/pkg/PLAW-109publ8/content-detail.html. You may wish to reread.

  28. 28
    anonimaniac says:

    Ira at 21:

    New homes create jobs. Lumber materials. Dry wall. Plumbing. Electrical. Durable goods like appliances. Etc. The labor to install such.

    Existing homes, while a larger part of the RE sales, are not as much a boon to the economy and job market, in fact very little. People may buy more stuff than usual moving into a new place but if it is an existing home then no one is buying and putting together all the stuff mentioned above.

    New homes = boon to the economy. Existing homes = mortgage paper and not much else.

  29. 29
    The_Dude_Abides says:

    Nationally, I’d predict GDP growth of 2.8% for 2010, ending the year w/ 8.8% unemployment. As far as Seattle, I’ve no idea…only lived here 2 years, thus still a newby. I think Boeing & MS will do well, but it appears they’re in no mood to hire.
    I’m in the camp that housing in Seattle will continue to fall, as I’m a firm believer of the 3X’s median income rule, unless you live in Sydney or Malibu Beach.
    We’ll see.

    Just a WAG, but I think the Dow will end the year @ $12,000, due to a mild recovery of the financials.

    Talked to a salesperson last night and she said sales were up just a little bit over last year. When I said I hope we’re over the worst of the credit crisis & recession, she said hopefully real estate will become reasonable and people will live within their means. Very impressive.

  30. 30
    Trigger says:

    RE: Jonness @ 9 – Jonness – Remember we can print and print to get ourselves out of debt. This is a big luxury that we have to have debt in USD. China is poor and needs outsourcing to feed the regime there. I think everything will be just fine. Bernake needs to make sure the printing presses are sturdy and will be able to print enough money for everyone. The press needs to be efficient.

  31. 31
    Jonness says:

    By Chris @ 14:

    A year ago you could have loaded up on stocks and made a killing.. no one wanted to be in the stock market… Everyone said DOW 2000… amazingly stocks recovered.

    Not a bad time to pick up a foreclosure or fire sale home in my opinion.

    The problem I have with that is when everyone was saying DOW 2000, it was well known the government was about to pump massive stimulus into the market. Now-a-days, It’s well known the government is on the verge of shelving it’s two main nuclear weapons that have been supporting the housing market.

    Currently, Seattle house prices are 25% overvalued compared to historical relationships to incomes. Today’s bargain hunter could turn out to be tomorrow’s foreclosure.

    The key is risk management. In my book that means keeping a mindset of, “what did comps sell for in 2000” compared to the mindset of “what did the house sell for at the peak of the bubble.” If you end up missing the bottom by 5%–or even 10%–at least you didn’t risk losing everything on the hunch that it might be a good time to buy.

    IMO, this is a long-term problem. The noisy fluctuations that occur over the span of a month or two are for the most part meaningless. This will take years to fully sort itself out.

    Stocks are much more liquid than homes. Thus full corrections require longer time spans for homes than for stocks. That said, stocks are still below where they were 10 years ago.

  32. 32
    BillE says:

    RE: Chris @ 14
    Part of me wants to think this way. On the surface it can sound like a good time to buy. Prices have declined from a few years ago and the overall view on homeownership isn’t what it used to be. It would even be sort of cool to puff out my chest, throw my money down, and quote Buffett about being greedy when others are scared. What stops me is that it wasn’t just a decline in housing prices, it was a huge, artificial increase THEN a decline. There’s no shortage of people who say it’s a good time to buy because prices have come down. But come down from what? The Nasdaq may have looked like a deal to some people at 3000 too.

  33. 33
    jmb27 says:

    Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.

    Here is an example of what I am talking about:
    Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)

    Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
    “Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”

    The Center for Responsible Lending says YSP “steals equity from struggling families.”
    1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.


  34. 34

    RE: wreckingbull @ 27 – I knew you were talking about the entire bankruptcy amendments, but I still don’t understand what parts of it you think locked people into debt. A lot of people think that you can no longer discharge credit card debt and other things that simply are not true. The biggest fears before it passed is that it would force a lot of people into Chapter 13 repayment plans, but even that has not been the case.

  35. 35

    By anonimaniac @ 28:

    Ira at 21:
    New homes = boon to the economy. Existing homes = mortgage paper and not much else.

    Again, I don’t think that’s true at all. I guess it depends in part on how tight the buyer is with their resources, but typically a move into a different house involves all sorts of different expenditures. Back when we did a remodel about 15 years ago, one of the major expenses was different furniture and such. But also, before you move into an older house it’s often a time to re-carpet or re-paint, assuming the seller didn’t do that before the house went on the market.

  36. 36
    MacroInvestor says:

    Did everybody forget that mortgage resets don’t peak until mid 2011? Flat may be the new up right now. The government is subsidizing buyers, and is behind 100% of mortgage financing via the secondary markets. Banks are loaded with foreclosures, ignoring them for now… hoping to unload them at higher prices.

    Risk is very high until these events play out at the earliest in 2012.

  37. 37

    RE: MacroInvestor @ 35 – Yet another problem that allowing mortgage cramdowns in Chapter 13 would prevent.

  38. 38
    corncob says:

    By Kary L. Krismer @ 36:

    I think you mean “Yet another solution that allowing mortgage cramdowns in Chapter 13 would prevent”.

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