Home Sales & Economic Growth

Kelly Evans wrote an interesting little piece in this morning's Wall Street Journal's Ahead of the Tape column in the Money & Investing section.

Not being a practicing economist, I do not claim to be totally conversant in every government data series. However, I pay attention to those who are.

Evans noted that sales of existing homes don't really have a strong connection to economic growth. Besides currently being skewed by the government cash-for-home buyers program, like other economic indicators which have been likewise distorted, she notes that the exchange of ownership of existing homes doesn't really create significant economic value.

However, new home sales do. Thus the title of her piece, "For a Better Reading, Try New-Home Sales."

She writes,

"Construction feeds directly into the calculation of U.S. gross domestic product, while sales directly influence GDP only through brokers' fees and commissions.

And amid a glut of excess inventory and an expanding foreclosure pipeline, the signal from new homes right now is much more cautious.

Last week, the Commerce Department said that new-home construction sank 10.6% in October to an annualized rate of 529,000 units, the lowest level since April."

Doesn't sound very promising, does it? But, wait, it gets worse,

"....sales of new homes have stalled in recent months at an annualized pace of about 400,000 units; forecasters expect that pace slowed to 395,000 units when Commerce reports October figures Wednesday.

In a short trading week crammed with data ahead of the Thanksgiving holiday, Monday's existing-home-sales report likely will grab the market's attention.

But Wednesday's read on new-home sales probably will be a more-telling indicator of what is in store for the economy."

Now that I'm clued in to the importance of this number, I'll be watching.