Friday, October 17, 2008

The Long Slump

It is interesting to read that the housing clump had just about bottomed. But then the credit crunch came and helped extend the housing slump. Now people realize that there will be more declines to come for a much longer time period than anyone wanted to originally admit. The downward spiral continues - less housing starts, less jobs. Less jobs, less potential buyers and more debts go unpaid. More debt going unpaid means more losses for lenders. More loss for lenders less money to lend. Less money to lend less housing starts. And so on, and so on. Bloomberg News has an article titled U.S. Housing Starts Probably Fell to 17-Year Low in September illustrates that the cycle will continue for some time. Here are some key parts of the article -

U.S. builders probably broke ground in September on the fewest houses in 17 years, a sign the real- estate market deteriorated even before the recent credit meltdown, economists said before a report today.

Housing starts fell 2.6 percent last month to an annual rate of 872,000, according to the median forecast in a Bloomberg News survey of 74 economists. Another report may show consumer sentiment fell in October for the first time in four months.

Builders will find it difficult to lure buyers into the market after stock prices plunged this month and banks made qualifying for a mortgage more difficult. Declines in construction are likely to continue to hurt economic growth well into 2009, extending the housing slump into a fourth year.

The biggest housing slump in a generation was showing signs of nearing a bottom when financial markets began to implode in September, leading to the government takeover of mortgage finance companies Freddie Mac and Fannie Mae, the failure of banks and a $700 billion government rescue plan this month. Recent events are likely delaying any return to stability.

Falling prices are contributing to the jump in foreclosures as Americans, trying to refinance adjustable-rate loans, find out they owe more than their homes are worth. The drop in prices also means owners can't tap home equity for extra cash, one reason behind the slowdown in consumer spending.

Everything is intertwined. It may take time for all the fallout to be understood by the masses, but it will. Money that people thought they had is gone. And jobs will disappear along with the money. The downward spiral will continue for sometime before it reaches bottom. Now the predictions are hoping for some time next year. Hopefully they are right!

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