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Barry Ritholtz, an accomplished blogger, just posted a slew of graphs on his blog The Big Picture that point towards the U.S. economy’s reliance on the housing market for its overall health.
In a particularly striking graph, Ritholtz plots “housing sentiment” – using a University of Michigan study that asks “is this a good time to buy a house,” and real GDP. Tracking the two figures over the last 10 years, Ritholtz shows how the housing sentiment figures are a clear precursor of movements in the GDP figure. As housing confidence goes down, so does GDP and vice-versa.
Perhaps most worrying about that chart is the dive the housing confidence figure has taken in the last two years. The obvious question is whether history will repeat itself and GDP will follow that dive?
In another chart, Ritholtz plots the National Association of Home Builders Market Index next to consumer spending figures. Again, the consumer spending figures shadow the housing index directly, following directly on behind the market index, after a time lag of a few months.
Again, the housing line that consumer spending is following has taken a huge dive over the last few months. The indication is that consumer spending will follow right along in its tracks.
The graphs are well worth looking at for a pictorial view what could be in store for the U.S. economy.