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Housing: The Roof Won't Collapse On The U.s. Economy

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Guest wrongmove

I'm a bear, but just for balance, here is another take on the ongoing US housing slump.

Housing: The Roof Won't Collapse On The U.S. Economy

As builders adjust their inventories, other sectors will offer plenty of support

It seems to be a foregone conclusion: The economy is slowing, perhaps sharply, as some pundits argue. Bond investors, at least, have taken the bait. Bond demand has surged, sending yields downward in recent weeks on the belief a softer economy will cool off inflation and allow the Federal Reserve to keep pressing the pause button on interest rates. The market for interest rate futures is even starting to build in an expectation that the Fed will start to cut rates early next year. July weakness in housing and some favorable-looking price indexes only support the slowdown scenario. Right?

Not so fast. Take a look at some of the economic readings outside of housing. Industrial production in July continued to gain momentum, not lose it, and the operating rate for all industry hit a six-year high. Consumers responded to sweet deals on autos in July, even as they boosted their spending on other retail items. Foreign demand also remained strong, as June exports posted another big gain. And second-quarter profits of companies in the Standard & Poor's 500-stock index racked up a solid advance of nearly 13% from a year ago, even excluding the energy sector. These reports hardly point to a broad moderation in economic activity.

All of this is not to downplay what is essentially a recession in housing. Housing starts sank further in July. Permits to begin new construction plunged close to a four-year low, and an industry measure of builders' sentiment sank to a 15-year low. Forward-looking indicators from declining mortgage applications to depressed attitudes of potential home buyers to moribund buyer traffic in model homes indicate more weakness to come. But as the numbers so far suggest, weak housing does not necessarily mean a soft economy......

Edited by wrongmove

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This article is mostly crap. Next section:

RIGHT NOW, EVEN a passel of strong data cannot draw attention away from the weakness in housing, the economy's most visible and most vulnerable sector. The worry is the housing slump, which appears to be getting worse, will drag down the entire economy.

However, this housing cycle is different. In the past, housing downturns have been the result of high interest rates and broad economic weakness leading to rising unemployment. This time, housing is going through its own cycle, largely independent of wider economic conditions. The economy outside of housing remains solid: Unemployment is low, household incomes are growing, and 30-year fixed mortgage rates, at a bit over 6.5% in mid-August, are hardly onerous.

This housing recession is primarily an inventory correction, as builders adjust to the aftermath of the demand frenzy in previous years. This is squeezing prices of new homes, with attendant effects on existing home prices. However, the sharp drop in housing starts of more than 20% so far from the January peak implies builders are moving quickly to realign their stocks of unsold properties with the lower level of demand. The faster the adjustment takes place, the quicker the downward pressure on home prices will ease.

Off the top of my head:

Unemployment is already on its way up. New jobs arent keeping pace with growing population. Article ignores the hit on unemployment when people are laid off as part of the "Inventory correction"

Household incomes are not growing they have been on a steady decline in real terms since the 70's.

30yr fixed mortgage...lol l wonder what percentage of the population has those then, given the IR was 1% only a couple of years ago. Can anyone say ARMs?? :P

the last paragraph is straight out of "The art of voodoo bull5h1t" Inventory correction...puh-leez. People aint buying, so they are trying to cut the prices now to get rid before they have to chase the market down. See that lower level of demand...don't bother explaining why there is a lower level of demand, its merely out of step with inventories. Gee next they'll be listing civilian deaths as collateral damage...

This article gets my Piss Poor Award of the Day.

Read the comments at the end for what the US Joe public is seeing.

Edited by DabHand

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Guest wrongmove

I am not really trying to defend the article, but it doesn't claim that housing is not in trouble. It calls the current situation a slump.

The point the article is making is that the housing slump, which it aknowledges, may not bring down the whole economy.

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Wasnt accusing you chap. Its good to have the flip side view but there's only so much of an article l can read that makes me grit my teeth.

What do you think of it? Personally, of course a housing slump will affect the economy. Its been the sticking plaster for fundamental weaknesses in the economy and its current decline is a sign that it can buffer no more. Anyways, all house price slumps/crashes have gone hand in hand with recessions. All that remains is to see how bad it is. I think it will be BAD. Its the 2001 recession l exepected that never materialised. Instead its been fermenting like overproof rum and now its ready to come out and play.

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Guest wrongmove

Wasnt accusing you chap. Its good to have the flip side view but there's only so much of an article l can read that makes me grit my teeth.

What do you think of it? Personally, of course a housing slump will affect the economy. Its been the sticking plaster for fundamental weaknesses in the economy and its current decline is a sign that it can buffer no more. Anyways, all house price slumps/crashes have gone hand in hand with recessions. All that remains is to see how bad it is. I think it will be BAD. Its the 2001 recession l exepected that never materialised. Instead its been fermenting like overproof rum and now its ready to come out and play.

I think the article makes some interesting points about the wider US economy. Housing starts are down 20% - this will help to address the supply/demand balance. IRs are still pretty low, so foreclosures should not be as numerous as in the last slump. Industrial output and consumer spending are actually rising - again different to last time. Remember, US prices have not grown nearly as fast as in UK.

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Guest wrongmove

Hmmm

I thought "Housing was one-third of the economy".

It is going to be hard to replace that missing third

I guess that depends on how bad things get. Housing won't completely disappear - economies can do well in times of (housing) non-boom. The weaker dollar should help exports. The US have a good history of digging themselves out of holes. It is certainly going to be interesting over the next few months.....

ps. Bubb - what do you make of the chart here http://www.housepricecrash.co.uk/forum/ind...showtopic=34534

Are you as bearish as the chart indicates about the S&P ? It tallies well with some of your posts a while back, but it implies a 40% drop over the next 12 months !

Edited by wrongmove

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Er what am I missing RB? :huh:

Have you ever picked up a newspaper dated a couple of weeks into the future? Its weird as you think you have been asleep for a few days. BusinessWeek is a bit ahead of itself if they wrote the article on 4th September 2006. :blink:

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I guess that depends on how bad things get. Housing won't completely disappear - economies can do well in times of (housing) non-boom. The weaker dollar should help exports. The US have a good history of digging themselves out of holes. It is certainly going to be interesting over the next few months.....

ps. Bubb - what do you make of the chart here http://www.housepricecrash.co.uk/forum/ind...showtopic=34534

Are you as bearish as the chart indicates about the S&P ? It tallies well with some of your posts a while back, but it implies a 40% drop over the next 12 months !

american history ?

ha. now thats a good one.

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The point the article is making is that the housing slump, which it aknowledges, may not bring down the whole economy.

Of course not. But it will cause one big-ass recession with inflation rising, real incomes dropping, consumer spending largely funded by MEW, and a vast fraction of new jobs created in the last decade in housing (EAs, construction, etc). Oh, and don't forget increased property tax based on bubble valuations, increased insurance based on bubble valuations, and greatly increased insurance in areas affected by last year's hurricanes.

We live in a world where houses are priced based on unskilled workers being able to earn a decent salary in a reliable job and borrow vast multiples of that salary at low interest rates. None of those things are going to exist much longer.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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