How can a reputable economist say the worsening housing market will not affect the economy? Well, that’s the view I’m reading more and more in the business pages these days.
You be the judge. What follows are recent reports on the U.S. housing market. Do you honestly think this kind of trouble in the housing market won’t affect the economy?
— Prices for resale homes dropped 1.8% in the first quarter of 2007 compared to the same period of 2006 — the third quarter in a row prices for resale homes have fallen.
— Existing home sales fell 8.4% in March from February — the biggest month-to-month decline in 18 years.
— U.S. home foreclosure filings skyrocketed 60% in April from April 2006.
— Applications for building permits fell in April by the biggest amount in 17 years.
Combine the above with the fact Bloomberg reports at least 50 mortgage companies (mostly subprime lenders) are out of business, and we see a huge problem in the housing market. New homebuilders are the most pessimistic they’ve ever been.
First, the economists (mostly the Wall Street type) and the Fed told us housing would come in for a soft landing. Well, it didn’t. Housing came in for a hard landing, like it always does after a boom. Now, they are telling us the housing market won’t affect the economy. Should we believe them this time? I don’t.
NEWSFLASH — Home Depot reports a 30% decline in first quarter earnings. The company blamed the poor housing market. Home Depot’s CEO was quoted as saying “we believe the home- improvement market will remain soft throughout 2007.” Someone should tell him next year won’t be any better.