This graph, from calculated risk, makes two interesting points. The first point is that all but the 2001 recession show a common pattern. New home sale declines were a factor in each of the recessions and increased sales of new homes led the way out of recession. That is because all but the 2001 recession were triggered by the Fed's increase in interest rates and all of the recovery's were triggered by the Fed's cut in interest rates. This was the pattern in the "Great Moderation" that we discussed in a prior post.
The second point is that the drop in the Great Recession was much larger than in any other recession and it has not turned around. New home sales are around 300,000 rate and they are over 700,000 in normal years. Over half of the home sales in the US are distressed sales, and new home construction will not recover until the distressed inventory is cleared.
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