The numbers for December new home sales are out, a seasonally adusted 4.8 percent uptick over November (although still an 11 percent drop compared to December 2005). In contrast, sales of existing homes in December were down 0.8 percent over November (and 7.9 percent from December 2005). On the other, other hand, housing starts bounced up for the second month in a row.
It's been a few months since How the World Works last checked in on the housing market, and that's primarily because the statistics have been so up and down it's hard to derive any firm conclusions from them. And for every statistic there's an alternate interpretation. Take your pick: The National Association of Realtors trumpets on its Web site that 2006 was "the third highest sales year on record." And yet, as the Wall Street Journal points out, the drop in housing demand, compared to 2005, was the sharpest year-on-year decline in 17 years.
We can take apart the housing-starts stat and blame the rise on warm weather or the well-documented unpredictability of multifamily housing start numbers. Or we can just disregard all these statistics, since in most cases, the margin of error on the estimates is considerably greater than the estimates themselves. We have lots of options.
The big question here, as always, has been whether the undeniable decline in the housing market will significantly impact the larger economy and, specifically, whether it will derail the American consumption locomotive that pulls the entire global economy along. That does not yet appear to be happening. Home builders are definitely suffering, and the sub-prime lending industry may be hitting hard times (though there are dissenters), but so far, the plug hasn't been pulled on the American consumer.
Which brings us to a consideration of the predictions of economist Nouriel Roubini, one of the most prominent bears on the U.S. economy. Last year, Roubini stated in fairly unequivocal terms that economic growth would flatline in the fourth quarter of 2006, and that a hard recession was gonna fall in 2007. Since I promised in my post on him last September, "Econoblogger of Doom," that I would keep tabs on his predictions, I was intrigued to note that while he was attending the World Economic Forum in Davos this week, Roubini had moderated his gloom, and was suggesting that maybe all that was ahead was a "growth recession." He'd also revised his fourth-quarter economic growth prediction to 2 percent positive growth.
What exactly is a "growth recession"? The term appears to describe an economy that is growing, but too slowly to create more jobs than are being destroyed. But since a "recession" is explicitly defined as two quarters of declining economic growth, flinging around the term "growth recession" is also kind of a weaselly way to continue saying "recession" while meaning something slightly different.
Make no mistake, Roubini is still a bear. You can find detailed explanations of why Roubini has moderated his views at his own blog. The quickest summary is that unseasonably warm winter weather combined with an unexpectedly sharp drop in oil prices managed to goose the economy along just when it was beginning to flag. But Roubini still believes that we haven't seen the worst of the housing bust, and that its tentacles will continue to expand through the greater economy in 2007.
The future is inherently chaotic and unpredictable, so maybe it's not fair to Roubini to hold him to his fiery predictions of imminent doom from last fall. As new data comes in, we must constantly revise our forecasts and understanding of the world -- to do otherwise would be dishonest. But it also helps to compare past predictions with what actually happens, because that helps us judge how much credence to give to the next gaze into the crystal ball. And so far, the locomotive is continuing to chug.
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