Housing Troubles Not Helping Consumer Sentiment

Heading into the second half of the year, the news continues to be discouraging in the housing market. The bidding wars from the past are long gone, as it is now a buyers’ market. For people who purchased property years ago, the values of their homes are still well up, but for those who may have bought at or near the peak, it has been disastrous.

The reality is that the housing market remains problematic. It will impact consumer spending and take a toll on economic growth, as evidenced by the miniscule 0.6% GDP growth in the first quarter. April was no better, as home prices continued to slide, with every key metropolitan area in the United States reporting a yearly decline based on the Standard & Poor’s/Case Shiller home price index.

The index comprised of 20 metropolitan areas, declined another 1.4% in April, and it is now down a record 15.3% year-over-year. The positive was that the declines were not as bad as estimates. In the two years since July 2006, the index has declined 17.9%. Foreclosures continue to be on the rise, as homeowners struggle to make payments, especially those with subprime mortgages.

For the investor, the continued credit and housing issues must still be taken seriously. I expect the economy to continue to struggle and slow down, perhaps entering a recession later in the year. The fact is that when people see their homes decline in value, there is a feeling of insecurity, causing a shift in attitude towards spending on non-essential goods and services. Add in the rising energy and gasoline prices, which also take a bite out of your budget, and there is a climate of trepidation in spending.

I continue to expect the negative impact of the housing market to dictate consumer sentiment and spending going forward.