Roadkill Journal

FoxNews reported yesterday more evidence the end of the long boom in housing construction may finally be in sight:

"Economists: U.S. Housing Market Heading South"

http://www.foxnews.com/story/0,2933,175927,00.html

Bad news; worse implications.

First, the construction industry - commercial and residential - has been one of the bright spots in the American labor picture for some time. Construction is by its nature resistant to deflationary pressures such as outsourcing. Combined with favorable wage laws governing the public sector and fairly strong unions, this natural immunity has helped to buoy the wages in the construction trades.

Indeed, many economists believe the construction sector has become the single most important prop for the living standards of blue-collar America, which have otherwise suffered a long erosion.

But given a downturn in housing starts, the industry could easily become its own worst enemy, falling into a tailspin of cost-cutting, creating downward pressures on wages through labor surpluses.

Then there is the deflationary effect on the prices of existing properties. Millions of people have purchased, refinanced, and capitalized on the assumption of continued inflation in house prices. The downturn could spell intense hardship for overextended homeowners counting on appreciated values - and utter ruin for speculators, realtors, and developers.

Ominously, all it has taken to knock the wind out of the boom is a 1% rise in long-term mortgage interest rates. When you consider our still quite low interest rates are hostage to the continued goodwill of foreign investors and their appetite for dollars and dollar-denominated investments, the weakness of our national house of cards becomes obvious.