Will Falling Auto Sales Lead To Falling Home Sales? – Forbes
Americans have been cutting back on vehicle purchases in 2017 after having reached a 17.8 million annualized pace in the fourth quarter of last year. The purchases were running 4% and 6% lower in first and second quarter of 2017, respectively. No great cheer in July either with 16.7 million auto sales. The declines are only moderate but nonetheless signals that the peak sales are over.
Knowing that auto sales are typically the second most expensive purchase after a home purchase for most Americans, are home sales also doomed for a decline? So far in 2017, existing home sales have been modestly higher by 3% while sales of newly constructed homes are about 10% higher. But what about in the past cycles?
The picture is mixed. In the few summer months of the 1970 automobile recession when car sales plunged from 11 million to 7.4 million, home sales barely budged. In the automobile recession of 1973-to-1975 when car sales experienced mostly month-after-month declines lasting over 2 years with sales falling from 15 million in 9 million, home sales did buckle by 15%, though not as dramatically as car sales. The very prolonged multi-year auto sales decline from 1978 to 1982 was also associated with a rather sharp cutback in home sales, which fell by 50% at the end of cycle in 1982. The next notable automobile recession was in the late 1980s to early 1990s, spanning 3 years, with car sales falling from 16 million to 12 million. Home sales decline by 20% over the roughly the same period. Finally, the most recent automobile recession was triggered in the Great Recession in 2008 when car sales took a massive dive from 17 million to only 9 million annual sales by 2009. Home sales were correspondingly whacked from 7 million to 4 million.
What to make of the past trends in projecting the future? If auto sales are moderately falling but not for multiple years then home sales are likely to hold steady. If auto sales do make a notable dip lasting over 2 years then home sales will most likely follow that trend. It is not the falling auto sales that is the cause for the decreased home sales, but rather the underlying economic foundation – such as jobs and interest rates – was unfavorable, which thereby buckles both auto and home sales.
The vehicle sales in 2017 are only modestly lower. Moreover, the recovery in the car sales after the recent Great Recession and up to last year was much stronger than home sales, with autos moving up from 10 to 16 million while home sales only rose from 4 to 5.5 million. Therefore, as long as vehicle sales do not decline further in any notable magnitude, home sales should easily be able to hold on at least through the end of 2017. The current issue in the housing market is not about potential pullback in buyer interests, as it appears in the auto sector, but rather about not enough inventory to fully meet all the demand.