Housing slump puts economists on edge

Thursday, August 10, 2006
Housing slump puts economists on edge
Many fear that end of boom will drag U.S. economy down

THE ASSOCIATED PRESS

WASHINGTON

The "For Sale" signs are staying out longer. House prices are easing as sellers try to lure in buyers.
The big question now: Will the nation's five-year housing boom turn into a devastating bust that could derail the overall economy? "We recognize the risk ... and we are watching it very carefully," Ben Bernanke, the chairman of the Federal Reserve, told Congress recently.

The Fed's interest-rate increases, which have helped push mortgage rates to the highest levels in more than four years, are putting a damper on housing. The Fed acknowledged that on Tuesday when it decided against raising a key short-term rate for an 18th time.

Instead, the Fed's policymakers said they believed that the "gradual cooling of the housing market" would help slow the economy and allow inflation pressures to moderate. The Fed's pause on rate increases came after various reports showed that the housing boom is definitely over. Sales of new homes and existing homes have been falling. Although the median prices are still increasing, the gains have been the smallest in years.

A record level of unsold homes is expected to exert even greater pressure on prices in coming months. The concern is that the sizable inventory glut could grow as millions of Americans with adjustable-rate mortgages, taken out when interest rates were at 40-year lows, suddenly find that they can't meet new higher monthly payments.

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The areas considered at greatest risk for falling prices are the once-booming regions of California and Florida, parts of the Mountain West and the Northeast.

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http://www.journalnow.com/servlet/Satellite?pagename=WSJ%2FMGArticle%2FWSJ_BasicArticle&c=MGArticle&cid=1149189898916&path=!business&s=1037645507703

This is going to hurt...

I guess that will be the next step.

... it's been done, but most of the time it winds up being a bumpy landing. We'll see how skilled Bernanke is, if you work on the assumption that ANYONE could engineer a real soft landing under these circumstances.

falling into deep shit is a soft landing

I like headlines that tend to soften what's really happening in the housing market.

Let's face it, the market is crashing around us and the ramifications on the economy will be felt severely in about 2 quarters IMHO.. Its coming and they don't want to face the music now..

Official statements also make a housing crash sound benign and all according to plan--

..."the Fed's policymakers said they believed that the "gradual cooling of the housing market" would help slow the economy and allow inflation pressures to moderate. "

Whooppee-- I can't sell my house, and I'm drowning in debt, but just look at those moderated inflation pressures!

Here's a link to the list of the 299 Markets that Global Insight tracked:

http://money.cnn.com/2006/03/13/real_estate/overvalued_housing_markets/index.htm

There will always be jobs for economists.