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[Getting Graphic] Housing: The Auto Motown Doldrums May Mean Recession

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: NYT

Click here to expand [1]

With all the buzz about the consumer’s 2/3 share of the economy and housing as the biggest purchase in many of our lives, we have tended to be housing-centric [pbs] [2] in the search through the tea leaves.

Sometimes I think that we can be better informed by looking at other industries for the health of the economy as it relates to the housing market rather than the other way around.

And since I was just in Detroit to visit family, what better way to look at the housing market, than to look at the impact of the auto industry on the economy? Afterall, 1 in 6 jobs is linked to this sector.

Floyd Norris does that for us in his A Car-Sales Indicator Suggests a Recession Is Near or Already Here [NYT] [3] using census data.

The accompanying chart shows the rate of change in sales by new-car dealers, comparing the most recent 12 months with the 12 months before that; it is adjusted for inflation. The rule — unveiled here for the first time — is that if the figure is down 2 percent or more, a recession is either under way or set to begin within a few months. The figure fell to a negative 2.4 percent when June sales figures were released last week by the Census Bureau.

There is, of course, no mystery now as to what the problems are for car dealers. They are pinched by the slumping real estate market because people can take less money out of home equity to buy cars. And soaring gasoline prices have made driving much more expensive and new-car payments more burdensome. In July, sales at gasoline stations accounted for 10 percent of all retail sales, the highest figure in decades.

We are starting to see warnings from large car dealerships. This one is from AutoNation [OCR] [4].

The result? Its a double edged sword. An offset, or perhaps not enough of one. Recession means a weaker economy and falling borrowing costs, but it also means layoffs, lack of job growth and more consumer pessimism, which brings more complacency about housing.