Tuesday, August 24, 2010


The Lehmann Letter (SM)


Today the National Association of Realtors announced a big drop in July existing-home sales. These data can vary sharply from month to month and the expiration of the housing-tax-credit had an effect. But the continued housing slump is cause for concern.

And it's not just existing-home sales that have been hit hard. New-home sales and residential construction are also in the doldrums. Residential real estate is in a slump.

Prevailing rock-bottom interest rates highlight the slump. They should stimulate building and buying, but they can't do the job. Households’ balance sheets are so illiquid and debt burdens so heavy, who can blame them for sitting on the sidelines?

In past business cycles, rising interest rates choked off housing and falling interest rates revived housing. But we've just come off a new post-World War II phenomenon: The housing-asset inflation and deflation. Be prepared for a very slow and weak recovery.

© 2010 Michael B. Lehmann

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