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How Housing Could Derail the U.S. Economy

John Gittelsohn and Bob Willis Business Week
Mark Ralston/AFP/Getty Images

Mark Ralston/AFP/Getty Images


Housing led the U.S. out of seven of the last eight recessions. This time it may kill the recovery.



On Aug. 24 the Chicago-based National Association of Realtors reported that July sales of existing homes plummeted 27.2 percent from June, the biggest monthly drop since recordkeeping began in 1999. Sales of new homes dropped to the lowest level on record.

The July numbers are another sign that home sales have collapsed following the expiration in April of a federal tax credit for buyers. The manufacturing-led expansion could theoretically take up the slack—except manufacturing is on the wane, too, with jobless claims rising and factory orders actually dropping once aircraft orders are excluded. "If foreclosures continue to mount and depress home prices, that could send the economy back into a recession," says Celia Chen, an economist who tracks the industry for West Chester (Pa.)-based Moody's Analytics.


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