All of a sudden, lots of bad news. Except that some of us have been talking about what’s coming for some time now. The signs were all there.
How much of the seeming prosperity of recent years was based on borrowed money? People were refinancing their houses as prices rose, and using the money to buy SUVs, etc. But now we have the opposite situation – these people now owe that money yet prices are falling. And with prices falling few new people will be refinancing. Meanwhile the government has borrowed massive amounts of money and pumped it into the economy – something usually done only to get us out of downturns – so if there is a downturn they won’t be able to borrow money to pump into the economy. Bush has used up that trick during the good times when we should have been paying off debt. (Clinton paid off debt, which is what allowed Bush to borrow so much…)
Here are a few of today’s stories:
How a Housing Slowdown Will Cause a Recession
The news has been universally bad: inventories are rising to 10-year high levels, buyers are already saddled with massive amounts of debt, homebuilders are cutting profit projections and overall investment is negative. And here is more from Nouriel Roubini: housing is already in free fall and will cause a recession by the summer of 2007.
…last week was one big series of uh-ohs.
[. . .]So where is the market headed? Nobody can be certain; much depends on whether the number of unsold homes continues to rise. Last week, doom-and-gloomers, emboldened by the new data, were citing reasons to believe that the latest bulge in inventories is just a taste of things to come. Plenty of new homes remain under construction. Speculators who haven’t yet unloaded their properties will do so for fear that things will get even worse. And then there are the hordes of recent buyers who, having assumed adjustable-rate mortgages that are becoming increasingly unaffordable as interest rates rise, may be forced to sell.
Stocks declined last week as investors worried that rising energy costs and a slowdown in the housing market could send the economy into a slump.
And the theme is sinking in around the country — Heartland Housing Market in Buyers Favor,
It can be a nightmare…as you wait and wait and wait for that house to sell. The bad news, it seems the housing boom is over.