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February 12, 2007

Housing Shock Waves

Economy

Salon reports on signs that the housing bubble is rapidly deflating. In Florida, January tax revenues fell for the third straight month, coming in at $108 million under budget for the month. Sales taxes alone fell $71 million. Sun-Sentinel:

Amy Baker, the coordinator for the Office of Economic and Demographic Research, attributed the drop in sales taxes to a "spillover effect" from a slumping housing market.

With fewer new homes being built and sold, sales of everything from shingles and sheet metal to washers and dryers are suffering, she said. "[That] is having some feedback into sales taxes," Baker said.

Similarly, the Sacramento Bee reported significant January revenue shortfalls in California, "which the state controller blamed on the real estate and construction industries." (Salon)

How big a deal is housing in the overall economy? Check this out. Bloomberg:

"Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005," she says. "Employment in residential construction declined in nine out of the 10 months ended January 2007," with 104,000 jobs in residential specialty trade contracting lost since the February 2006 peak, according to the Bureau of Labor Statistics. [Emphasis added]

Housing has been keeping the economy afloat, based on a lending bubble that, like all credit bubbles, could not last. Just three years ago, Alan Greenspan opined that "consumers would benefit if lenders provided more alternatives to traditional fixed-rate mortgages." Adjustable-rate mortgages have one problem, though: they adjust. Not coincidentally, the share price of New Century, the second largest provider of subprime mortgages to the US market, fell 36% on Thursday. The bill is coming due.

Posted by Jonathan at February 12, 2007 06:42 PM  

Comments

> The bill is coming due.

The housing market, like all markets, goes up and down. It went up for so long that a significant correction was bound to happen. It will reverse itself and go back up again, you can be sure.

Sorry, doomsdayers, this is not the sign of the apocalypse that you've been looking/hoping for.

Posted by: Kevin at February 13, 2007 10:44 AM

Kevin doesn't understand because he is not a home-owner.

What he's not seeing is the big picture -- and I'm not sure I can comprehend all the ramifications, but I am sure the number of foreclosures will reach an all time high.

Posted by: Lane_in_PA at February 13, 2007 03:06 PM

>Sorry, doomsdayers, this is not the sign of the apocalypse

Why don't explain exactly what you are trying to say here "Kevin"?

Posted by: at February 13, 2007 05:56 PM

Not the apocalypse, Kev, just hard times.

Posted by: Michael at February 13, 2007 09:03 PM