Out of Control Policy Blog

Will housing declines trigger a recession?

Okay, it's official--the 2007 housing market was a disaster. The National Association of Realtors estimates that single family homes sales dropped 13 percent for the year, and housing prices declined 1.8 percent. The Associated Press reports:

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

Odds of a recession are now pegged about about even, but the indicators are volatile. Third Quarter 2007 growth was humming along at a robust 4.9 percent and then cooled down to about 1 percent for the Fourht Quarter. It's anyone's guess what the First Quarter of 2008 will bring.

Nevertheless, AP reports:

There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

But, how likely is it that the housing sector will trigger a recession? Our take on this can be found here in Reason's recent web commentary.

Samuel Staley is Research Fellow


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