Housing...Things are going from bad to worse

So the housing market is finally on its knees. However, I wouldn't say people are really bleeding or jumping out of windows yet. The consumer debt overhang is a fun problem we will have to deal with in 2007 and 2008.


Recently sales of existing homes in September clocked in at 6.16 million, down a bit from Augusts number of 6.3 million, and down a bit more from last September's 7.4 million. Oh and inventory of existing homes is up to 7.2 million from 4.6 million homes same time last year.

Things have finally turned for new housing and the optimistic builders, forcing the median home price down to 217,000 a 9.7% drop from last year and largest drop in over 30 years.

This leads to the other question, well maybe its time to buy...after all...prices should start coming up again...Terry Savage of the Chicago Sun Times throws people's hopes and dreams of higher housing prices back into the toilet.

"A generation of investors was scared out of the stock market by the 2000 crash and subsequent bear market. Many came to view real estate as the alternative for creating wealth. Now the differences in the two types of investments will become apparent. After all, the Dow has made new highs in a short time period. It's unlikely that real estate will make a similarly timely rebound from its eventual low. (Chicago Sun-Times, http://www.suntimes.com/business/savage/116415,cst-fin-savage30.savagearticle)"

"Yet in the coming months, an estimated $1 trillion in adjustable-rate mortgages will be re-set. Even at current low rates, monthly payments will jump for those who entered the market with low teaser rates. And those who have interest-only mortgages could see their monthly payments rise by 50 percent. (Chicago Sun-Times, http://www.suntimes.com/business/savage/116415,cst-fin-savage30.savagearticle)"

Who cares about the housing market you say?

Well, besides its definate impact on the economy through the lowering of people's net worth, reducing their credit worthiness, causing defaults, turning mortgages "upside down" (when your house is worth less than your mortgage), and a general downward shift in consumer spending and demand.

This basically means if personal income or business spending doesn't start going up, we might be in for a smaller GDP growth rate. Lower tax revenue, cuts in programs, medicare, social security all the good stuff...might as well start eating cheese, drinking wine, wearing a beret and protesting labor in the streets...