Final Dip Coming For Housing Market
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Back on August 28, I shared this same chart for our Chart In Focus readers. Given the seeming rebound in home sales, it is an appropriate time to revisit this issue.
I have come to appreciate in recent years the real value of watching lumber prices, because they are a great economic indicator. The movements of lumber prices show up again about a year later in interest rates, and also in home sales as shown in this week's chart.
Home sales volume bottomed in January 2009, a year after the Jan. 30, 2008 bottom in lumber prices. Starting in April 2009, we have seen a rise in the rate of home sales, which many have attributed to the federal tax credit for new home buyers. It is hard to know exactly how much of that rise can be attributed to that tax credit, since a person's specific motivations for buying a home are complex, and cannot be distilled down to just one single factor. What I can say is that the rise so far matches a similar rise a year before in lumber prices.
That 2008 rally in lumber prices failed to break the long downtrend line, and lumber fell to an all-time low (at least in terms of lumber futures prices, which have traded since 1972). That all-time low was on January 29, 2009, and so it means that home sales ought to bottom about 12-13 months later, in early 2010. For home sales to do that, they are going to have to turn downward from here.
Perhaps the tax credits will provide a counter-cyclical boost to the home sales, rate, moving forward some sales that would otherwise happen in the future. We will know for sure a year from now how those tax credits might have bent the correlation between these two sets of data.
One good piece of news for those awaiting a housing recovery is that lumber prices in late 2009 have now broken the long downtrend, and pretty decisively. This means that by the end of 2010, we should be seeing home sales rates rising of their own accord, without the government's thumb on the scale. But there should be a bit more of a soft spot evident in early 2010 before that rise starts to become apparent.
Editor, The McClellan Market Report
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