Housing Woes Threaten Economy

Economists said May’s decline in home sales may weaken an already tepid economic recovery.

New-home sales tumbled 33 percent last month, the biggest drop on record, according to the U.S. Commerce Department.

“If there is a sharp decline not only in housing sales but in housing prices, that could threaten a recovery,” says Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia.

“A tepid economic recovery — that’s what we’re going to get, because housing is only very slowly going to return to normal,” says Edward Leamer, an economist at the University of California, Los Angeles, and director of the UCLA/Anderson Business Forecast. “We’ve had a medicated market because of the tax credit and the meds have been removed, so it’s going to be difficult to sell homes in the next few months.”

“This is a recession that was induced by housing, and housing is not going to carry us out like it has done in the past,” says Diane Swonk, chief economist of Chicago-based Mesirow Financial Holdings Inc.

Source: Bloomberg, Kathleen M. Howley (06/23/2010)