More grim news on the housing industry front as reported in the New York Times (http://www.nytimes.com/2007/09/28/business/28econ.html?_r=1&oref=slogin). Obviously, if the trend continues, more and more builders and homeowners who took out 100% loans and other risky loans will be under increased pressure and/or face bankruptcy. Here are a few story highlights:
The latest data gave a fuller picture of the distress in housing-related industries, where the subprime mortgage crisis has led to turmoil in the broader credit market and to increases in foreclosures. On Tuesday, the National Association of Realtors reported a 4.3 percent drop in August in sales of existing homes, and another large home builder, Lennar, recorded the largest quarterly loss in its history.
Last month’s drop-off in new-home sales was focused primarily in the South and the West, areas particularly hurt by subprime-lending problems. The seasonally adjusted pace of new-home sales is now down more than 21 percent from last year.
“If sales continue to fall, builders will continue to cut back on construction, which will be a direct drag to economic growth,” said Michelle Meyer, a Lehman Brothers economist who specializes in the housing industries. “Inventories remain elevated, home prices will fall as a result, and a decline in home prices will depress consumer spending.”
Analysts concurred, predicting that the disappointing data signified only the start of an unfolding decline in housing that could last several quarters. “Anybody that’s expecting a turnaround in housing anytime soon is going to be disappointed,” said Mike Schenk, a senior economist at the Credit Union National Association. “It’s going to be a long, slow process.”
Richard Moody, chief economist at Mission Residential, a real estate investment firm, predicted a jump in foreclosures that would add to inventory woes. “When you combine that with the tightening lending standard we’ve already seen,” he said, “and the tighter credit market conditions we’ve seen since August, it’s going to take that much longer to work all this off.”