Friday, November 18, 2005

TROUBLE ON THE HORIZON

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.

Comments:
How Newsworthy Are Personnel Announcements?
Filed under: - Amy Gahran @ 12:42 pm Yesterday, McBru Blog , offered an intriguing and potentially instructive post.
Find out how to buy and sell anything, like things related to road construction of pa on interest free credit and pay back whenever you want! Exchange FREE ads on any topic, like road construction of pa!
 
I'm with you on this one. The bubble has to pop. Anytime you get to the point where an average house is too expensive for an average family to afford something has to give.

I read that the majority of mortgages bought in San Diego last year were adjustable-rate. There are a lot of people, particularly in cities, that speculated with ARMs. They are going to get squeezed hard if rates keep going up. Wouldn't be surprised to see a big increase in home repo's in coming years.
 
Post a Comment

Links to this post:

Create a Link



<< Home

This page is powered by Blogger. Isn't yours?