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Housing update: significant improvement

New home sales (top chart) in May were quite a bit stronger than expected (369K vs. 347K). Those who see the glass as half empty will note that sales were still extremely depressed, down almost 75% from their 2005 high. Those, like me, who see the glass as half full will note that sales were up a very strong 35% from last year's low; they will also note that housing starts, which must lead new home sales, are up 48% from their recession lows. These charts use a semi-log scale for the y-axis in order to reflect the magnitude of change on the margin in these two indicators.

To be sure, the level of sales and starts remains very depressed from an historical perspective. But from an economist's perspective, it's not the level that is important, it is the change on the margin. Correctly viewed, there has been a very significant improvement in the housing market over the past few years.

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