The above graph shows US New Home Home Sales vs Recessions. The only thing missing from the is graph is a light grey line representing the current recession. Every time in the last 40 years that New Home Sales fell significantly a recession ensued.
That doesn't mean that a decline in housing causes recessions but that it is a good leading indicator. The latest report shows that New Home Sales continue to fall to levels not seen since the 1991 Recession. From the US Census Bureau:
NEW RESIDENTIAL SALES IN JANUARY 2008
Sales of new one-family houses in January 2008 were at a seasonally adjusted annual rate of 588,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.8 percent below the revised December rate of 605,000 and is 33.9 percent below the January 2007 estimate of 890,000.
The median sales price of new houses sold in January 2008 was $216,000; the average sales price was $276,600. The seasonally adjusted estimate of new houses for sale at the end of January was 482,000. This represents a supply of 9.9 months at the current sales rate.
As seen below, the number of houses available for sale declined. That's obviously a good thing as the amount of inventory is reduced. Some of that may be sellers taking their house off the market because they don't want to accept lower prices, however the trend is at least going in the right direction.
The months supply of inventory however, continues to rise as the level of sales decline out-paces the reduction in inventory.
One final observation about the January numbers. Looking at seasonally unadjusted data, the latest month is the lowest number of sales in the month of January since 1991, the trough of the last down cycle in new home sales.