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As Housing Goes, So Goes the Economy? Speculative Housing Buying of Today Resembles Tech Bubble of Late '90s

Those words, uttered by President George H.W. Bush in 1992, may be coming back to haunt us today. Housing prices are falling, borrowers are defaulting, credit standards are tightening, and subprime lenders are going bankrupt. There is growing concern that the woes of the housing sector will impact the broader...

By Staff Writer | Updated on April 17, 2007

Those words, uttered by President George H.W. Bush in 1992, may be coming back to haunt us today. Housing prices are falling, borrowers are defaulting, credit standards are tightening, and subprime lenders are going bankrupt. There is growing concern that the woes of the housing sector will impact the broader economy, sending it into recession. And there are numerous signals to suggest that possibility is all too real.

Perhaps the most compelling is the National Association of Home Builders’ (NAHB) Housing Market Index. The seasonally-adjusted index is based on a monthly survey of builders, and has three components: current sales, the six-month forward sales outlook, and traffic of prospective home buyers. The index range is from one to 100; a reading below the midpoint of 50 indicates that more survey respondents see more poor than good conditions for home sales. The most recent reading, for March, is 36, and the index has been below 50 since last May, with the cyclical low of 30 reached in September.

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