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October 03, 2007

Pending Home Sales Drop Is "Big News" Economy

Dean Baker, co-director of the Center for Economic and Policy Research:

The 6.5 percent drop in August pending home sales is big news. The drop in the index, which measures the number of contracts signed, follows a 10.7 percent drop reported for July. This is a truly extraordinary two-month decline of 16.5 percent. This is a new index (it began in 2000), so it is easily the sharpest fall on record, but it would likely have been the sharpest two month decline in contracts at any point in the post-war era. The actual falloff in sales is likely to be even larger, since a high percentage of these contracts will not close because buyers cannot arrange financing.

While it's possible that sales may stabilize and even rise back somewhat now that the mortgage markets are in somewhat better shape, they are now down more than 20 percent from year ago levels in this index and by more than 30 percent from the year-round average in 2005. The idea that the economy will somehow brush off a decline of this magnitude and keep moving along at a healthy pace seems almost bizarre. With consumption growth weak, equipment investment flat, and non-residential investment peaking, there is little other trade driven by a falling dollar (and thereby higher import prices) to sustain growth. [Emphasis added]

But what I really want to know is who's going to get custody: Britney or K-Fed.

Posted by Jonathan at October 3, 2007 05:25 PM  del.icio.us digg NewsVine Reddit YahooMyWeb