Wednesday, May 28, 2008

Housing and Autos


In the last two days The New York Times published analytical articles on housing and autos that speak poorly for the economy’s outlook.

Today’s edition carried a story by Vikas Bajaj ( that began:

“America’s home-buying season, when for-sale signs sprout like dandelions, is shaping up to be even worse than expected this year, with prices falling, sales slowing and few signs of a turnaround emerging…………

And went on to say:

“While Wall Street is growing hopeful that the economy may dodge a recession, many economists warn that the pain in the housing market may last for several years.

“Even markets that once seemed immune to the slump, like Seattle, are weakening. Prices nationwide might fall as much as 10 percent more before a recovery takes hold, economists said.

“As the home-buying season enters what is traditionally its busiest period, there are simply too many homes in many parts of the country, and too few people with the means to buy them.

“The situation is likely to get worse because a rising tide of foreclosures is flooding the market with even more homes, while a slack economy and tight mortgage market are reducing the pool of potential buyers……….

“Sellers confront a sober reality: There are more than 4.5 million homes on the market nationwide. The way houses are selling, it would take nearly 11 months to clear the market. The last time so many homes were for sale was in the early 1980s, when the economy was in a deep recession and interest rates were two to four times as high as they are today.”

The article did not mention another depressing element. Builders continue to spew forth almost a million new homes a year, adding to the 11-month inventory (at the current selling pace) of 4.5 million homes reported in the preceding paragraph. No wonder home prices are falling rapidly and are expected to fall further.

Meanwhile, depressed conditions in residential real estate spill over to the automobile industry.

Eric Dash reported on this problem in yesterday’s Times ( He began:

“The auto industry is getting sideswiped by the housing crisis.

And continued:

“Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.

“Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.

“The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown………..

“As the pool of money available to auto lenders has dried up, they have cut back on making new loans. Since late last year, nearly every auto finance company has tightened its lending standards. They are forcing borrowers to put more money down. They are also demanding higher monthly payments and requiring stronger credit records and more stringent documentation.”

If it wasn’t for bad news, housing and autos wouldn’t have any news at all.

It’s not easy to see how we can Dodge (forgive me) a recession under these circumstances.

© 2008 Michael B. Lehmann

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