Housing market slowdown rippling across the economy

Discussion in 'Financial Cents' started by Quigley_Sharps, Jul 27, 2006.


  1. Quigley_Sharps

    Quigley_Sharps The Badministrator Administrator Founding Member

    BOSTON - A nationwide housing boom gave the current economic expansion its biggest boost. Now, a housing dip is raising the prospect of a slower economy ahead.

    After another monthly dip in June, sales of previously owned homes have fallen in all four major regions of the United States from a year ago, with nationwide sales volume down 9 percent, according to a report released Tuesday by the National Association of Realtors.
    Home prices have flattened, up just 1 percent from a year ago, when housing activity peaked.
    And in some metro areas, such as here in Boston, home prices have fallen on average over the past year.
    These trends are rippling into the broader economy. Home builders, among the most impressive contributors to gross domestic product GDP in recent years, are scaling back their plans. And millions of consumers face indirect effects: With interest rates rising even as home prices stall, fewer people can borrow on home equity as a source of free cash. Many others – those with adjustable-rate loans – are now being hit by a jump in their mortgage payments.
    The question is how far housing's slowdown will go, and how fast. So far, the impact on the overall economy has been, in the words of Federal Reserve
    Chairman Ben Bernanke, "orderly."
    Economists generally expect that it will remain that way, although some high- flying real estate markets may face a harder fall.
    "We don't think it's going to be a disaster. It's just going to be bad," says David Wyss, chief economist at Standard & Poor's in New York. Although a housing bust has often been a precursor of recession in the past, "it hasn't been recently."
    What this housing downturn could do is slow the pace of economic growth significantly.
    Economists at Merrill Lynch, for example, reckon that the dive in homebuilding alone could subtract a percentage point from overall gross domestic product in the third quarter, tugging GDP growth down to perhaps 2.5 percent, annualized, for that quarter.
    And recession is a real possibility, in the view of Merrill Lynch's David Rosenberg. After the past 10 peaks in new-home starts by builders, an economy-wide slump has followed seven times. Housing starts, like home sales, peaked last summer.
    The effects of a housing downturn are both direct and indirect.
    Residential construction has become a larger force in the economy, rising from about 4.5 percent of GDP to 5.5 percent since 1990. But in the months ahead, builders won't be hammering out much of an addition to GDP. Last week, the National Association of Home Builders index of contractors' sentiment fell to a 14-year low point.
    The indirect effects stem from consumers, whose spending represents two-thirds of GDP. In recent years, rising home prices and low interest rates have allowed them to extract billions of dollars in cash.
    Now that gusher is fizzling out.
    "Households are beginning to feel the full impact of higher borrowing costs, a softening housing market, and high gasoline prices," Nariman Behravesh, chief economist at the consulting firm Global Insight in Lexington, Mass., wrote in a report this month.
    If a construction slowdown represents a cut of nearly 1 percent from GDP growth, the impact from a slowdown in home-equity extraction could be almost as large, some economists say. Fixed-rate mortgage rates have jumped more than a full percentage point during the past year, as the threat of inflation has loomed larger and the Federal Reserve has raised the short-term interest rates it sets.

    "The higher the Fed raises interest rates, the worse the problem gets," says Mr. Wyss at Standard & Poor's. "The rising level of home prices has been a big boost for consumers."
    But the American economy has behaved in an increasingly resilient fashion in recent years, weathering setbacks such as hurricanes, terrorist attacks, and soaring energy prices.
    Many forecasters say that the housing slowdown will be offset, in consumer pocketbooks, by rising pay in the year ahead.
    Americans showed some of their renowned economic resilience Tuesday, as a major index of consumer confidence rose slightly for the month, rather than edging down as analysts had predicted.
    A generally optimistic view of the job market was a key factor.
    Consumers saying jobs are "plentiful" increased to 28.6 percent from 28 percent, while those claiming jobs are "hard to get" remained virtually unchanged at 19.9 percent, reported the The higher the Fed raises interest rates, the worse the problem gets," says Mr. Wyss at Standard & Poor's. "The rising level of home prices has been a big boost for consumers.

    But the American economy has behaved in an increasingly resilient fashion in recent years, weathering setbacks such as hurricanes, terrorist attacks, and soaring energy prices.

    Many forecasters say that the housing slowdown will be offset, in consumer pocketbooks, by rising pay in the year ahead.

    Americans showed some of their renowned economic resilience Tuesday, as a major index of consumer confidence rose slightly for the month, rather than edging down as analysts had predicted.

    A generally optimistic view of the job market was a key factor.

    Consumers saying jobs are "plentiful" increased to 28.6 percent from 28 percent, while those claiming jobs are "hard to get" remained virtually unchanged at 19.9 percent, reported the Conference Board, a business research group in New York that conducts the monthly survey.

    The full extent of the housing slowdown will unfold slowly, and in ways that are often unique to individual markets, economists say.

    Often a down cycle involves two or three years of flat or falling prices, followed by a slow recovery.

    Prices in the Midwest and South have fallen slightly during those twelve months, while the West has held flat and the Northeast notched 7-percent gains.

    But Northeastern cities such as New York remain vulnerable, along with other cities in California and Florida where prices had been soaring at double-digit rates.

    "Price reduced!" advertisements increasingly beckon customers in Boston, where median prices fell 1.5 percent over the year ending April 30.

    Nationwide, the inventory of homes for sale is up 39 percent – leaving a 7-month supply of homes on the market.

    That could leave plenty of time for home buyers to shop around." name=context> </FORM>Conference Board, a business research group in New York that conducts the monthly survey.
    The full extent of the housing slowdown will unfold slowly, and in ways that are often unique to individual markets, economists say.
    Often a down cycle involves two or three years of flat or falling prices, followed by a slow recovery.
    Prices in the Midwest and South have fallen slightly during those twelve months, while the West has held flat and the Northeast notched 7-percent gains.
    But Northeastern cities such as New York remain vulnerable, along with other cities in California and Florida where prices had been soaring at double-digit rates.
    "Price reduced!" advertisements increasingly beckon customers in Boston, where median prices fell 1.5 percent over the year ending April 30.
    Nationwide, the inventory of homes for sale is up 39 percent – leaving a 7-month supply of homes on the market. That could leave plenty of time for home buyers to shop around.
     
  2. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    If you're selling a house here in Vegas you're in trouble. Not long ago our house and lot would've been worth almost $500k, and when we put it up for sale we tried $475k. Not one look! Now we dropped it to $444K and had one visit. There's 20k houses for sale here - my neighbor bugged out months ago and moved into a house in Pahrump, and no one looks at his empty one so he's paying 2 mortages.
     
  3. Ardent Listener

    Ardent Listener Monkey+++

    There has been a lot of stories on the news lately about the housing market slump. I hear the price of some building materals are going down too.
     
  4. ghrit

    ghrit Old, mean, and nasty Administrator Founding Member

    Not too true around here. Lumber, steel, pipe, wire and cement are all up over 3X from a year ago, and the trend is up. Mostly, I think, because of fuel rather than a real cost of material.:eek:
     
  5. ghostrider

    ghostrider Resident Poltergeist Founding Member

    Fuel costs and demand from the rebuilding from Katrina.
     
  6. Bear

    Bear Monkey+++ Site Supporter+++ Founding Member Iron Monkey

    I also think manufacturers and distributors are pulling back on production and orders as they eye the future and try to calculate demand.... too much inventory is a bad thing.... next they lay off workers... then spending drops.... sort of the cascade effect....:cool:

    Oops forgot to add that the limited inventory (while its planned not real) is meant to keep prices up and therefore profits .... oh and you still get to layoff workers and further increase profits.... sound familiar?
     
  7. ghostrider

    ghostrider Resident Poltergeist Founding Member

    $70 oil couldn't put us in a recession, but a drop in employment numbers and consumer confidence will.
     
  8. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    We're down to $423K now and started at $475k. Not one looker yet at this price, but it's only been a few days. The FED really screwed everyone raising the rates without cause, or some cause that only they can see.

    I doubt that very much. All metals cost way more, and the framing lumber alone for our new house was over $12k and that didn't include trusses. The only thing cheap is the 47 cent plastic electrical boxes.
     
  9. ghrit

    ghrit Old, mean, and nasty Administrator Founding Member

    Put in twice as many as the code requires, you'll be a happy camper for years. With as many "things" that want to be plugged in for recharge or use these days, the code is WAY to retarded.;)

    Don't forget 220V in the shop, or if you really want power tools (a decent air compressor, for example) go for 3 phase. You definately want 220V for a stove and dryer if you have to be electric throughout.
     
  10. Bear

    Bear Monkey+++ Site Supporter+++ Founding Member Iron Monkey

    I agree.... even if you don't put in the receptacles until you know what you're gonna plug in.... at least have the electrician wire them to the shop or where-ever.... and get it in the breaker box.... actually if you can wire in a transfer switch for a generator or two that would be a smart thing as well... it will cost much more to have them do these things later....

    When I had my addition and shop done... since they had to update the breaker box and run lines through the house and attic anyway... I had them add another box to the shop with mucho receptacles and a couple 220 lines down to the box.... either it was gonna be air conditioning or a welder or a grinder:D
     
  11. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    Oh yea, when the electrician saw what I wanted in the shop he about pooped his pants! Something like 24 110V outlets and 7 220V. I cut the number of 110V ones down since they're putting in shop lights that I specify but there's still plenty. I only have one 220V tool now, my grinder, but will add more like a mill and big compressor so he's blanking off all but one for now. :)
     
  12. Bear

    Bear Monkey+++ Site Supporter+++ Founding Member Iron Monkey


    If you can... put some outlets on the ceiling above potential work areas and around the center of the shop.... I found they're great for lights, blowers or fans, retractable air hoses or extention cords, oh and for mounting air cleaners that hang from the ceiling.... I've got two above my shop... I'm gonna put two more .... darn handy....;)
     
  13. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    I definitely have some in the center of the ceiling in case I have to make a "row" of equipment there like I have now in the garage. Working off of extention cords is no fun, and some stuff like my welder won't even turn on hooked to one.
     
  14. kckndrgn

    kckndrgn Moderator Moderator Founding Member

    I think it's funny to see all these reports that the housing market is slowing down, it may be in some areas, but not in Membabwei, er Memphis. I just notice yet another few acres of trees cut/bulldozed down to make room for another zero lot line subdivision. The amount of houses going up in the membabwei are is staggering, there are at least 1/2 dozen subdivions being built on my way to work.

    And what's funny about it is the fact that most of these new subdivions are being built in "unincorporated" area (they don't "belong" to any city, but are just considered "county" homes). Membabwie is plannin on annexing these area in the next couple of years so developers are trying to get houses built and sold before then (because they will be county taxes and county schools). Then membabwie will annex them and they will DOUBLE property taxes for the homeowners, DAMHIK, and the kids will have to be bussed to the overcrowed, over ganged city schools.

    Man, I can't wait to move out of Membabwie!!!

    Ryan
     
  15. RightHand

    RightHand Pioneer in a New World Moderator Founding Member

    kckngrgn, it will be interesting to hear your report on how fast these sell. There is a definite slow down in our area. Approaching a buyer's market!
     
  16. kckndrgn

    kckndrgn Moderator Moderator Founding Member

    In my neighborhood (all houses built in the 70's) we've had some houses for sale for 6 months or more. But they all have had people move in within the last month. I do not know if these are renters or people actually have bought the houses, but they are at least occupied right now.

    I'll try to keep an eye out for when I start seeing people moving in and report back.

    Ryan
     
  17. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    One of the problems with selling a house here is the new ones are offering 5, 8 and even 15% co-op for the buyer's realtor. It's hard to compete with that. We've had no visits after cutting the price $52k from the original listing.
     
  18. monkeyman

    monkeyman Monkey+++ Moderator Emeritus Founding Member

    Have you thought about useing it as a rental property if selling it is to much of a problem? I know at least here in the mid west and have gathered in many areas that the hardest rental properties to find are the uper midle class housing. The super cheap basicly slums are all over but housing in areas like it sounds like your house is are hard to find for rent. If its going to be to hard to sell without going to low then it might be a thought at least for a temporary thing to see if the market swings back to a place where you could sell it at full value.
     
  19. RightHand

    RightHand Pioneer in a New World Moderator Founding Member

    Consult your CPA before converting to a short term rental property then selling. There are definate tax consequences - capital gains tax.
     
  20. Valkman

    Valkman Knifemaker Moderator Emeritus Founding Member

    With my luck I'd rent it to someone who turns it into a crack house! :unsure:
     
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