The Bellwether

4th August 09 - The Bellwether

Notwithstanding China and all the other economic upstarts, it is the US economy that dominates the global scene and if we go back to where this recession began, it was the US housing market that caused the house of cards to collapse. That is why out of the plethora of economic data flowing from all manner of sources currently, one item sticks out as disproportionately important.

The US Commerce Department has produced figures showing that the sale of new homes rose to a seasonally adjusted annual rate of 384,000. This compares with 346,000 in May 09. This may not seem, prima facia, as all that significant. But it is. Just as the US economy is key to world health, so the US housing market is key to US economic health. The practice of selling houses to those who could not afford to pay the attached loans was the root cause of the crisis that first manifested itself in the third quarter of 2007 and the recovery of that market is the indicator of confidence returning to the American consumer.

The 11% increase in the sale of new homes in June 09 was the biggest monthly increase in eight years and has all the hallmarks of a bottoming out of the two year glut. Of course, the main reason for the increase in house sales was falling prices that itself was a symptom of repossessions. The median sale price of a house at the end of June 09 was $206,200 down from $219,000 a month earlier. But that is how free markets work, at some stage the scales tip.

A secondary indicative statistic coming out of the US Commerce Department, and one that is watched closely, is that at the end of June 09 the number of homes up for sale equalled a supply of 8.8 months. At the end of January 09 this figure was 12.4 months. When America sneezed the world really did catch a cold. Dare one even hope to believe that the pandemic has run its awful course?

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