First Real Estate Goes Down. Stocks, Economy Then Follow

Several important points you should know about the housing market that spells big trouble ahead for the U.S. economy:

— For the first time in recent history (at least since the Depression), the median price of a home in the U.S. is expected to fall this year.

— Because of the problems with the subprime lenders (reports say between 30 and 50 of them have closed their doors or are for sale), the number of potential buyers of homes in the U.S. market place has shrunk significantly. People who do not have good credit are having trouble buying and refinancing.

— Billions of dollars in adjustable rates are resetting to higher interest rates, resulting in sharply higher monthly mortgage payments for many thousands of Americans who were lured into ARMs.

— The supply of unsold homes in the U.S. sits at a record high.

— The Dow Jones U.S. Construction Index broke down yesterday to 579.13 — getting closer to the bellwether new home builder index’s 2003 level.

To the above, add the rising rates of mortgages in the U.S. (long- term rates up half a point in just over a month), and you have a crisis developing in the U.S. housing market. Personally, I’m ashamed all those analysts who were predicting a soft landing for the U.S. housing market call themselves economists.

Can the U.S. housing market crash? It is.

Can the U.S. economy (and the stock market) go along as if all is well? No.

While many economists are telling us the housing bust won’t hurt the general economy, again I don’t believe they know what they are saying. Back in 1927 the U.S. real estate market collapsed. In 1929 the stock market crashed. In the early 1930s the Depression started.

I’m not predicting a depression (a severe recession is more likely). I am merely stating the U.S. economy will eventually feel the pain of its housing market.