Commentary

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 R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.