Probably nothing is hanging heavier over the economy than the far-flung repercussions of the sub prime mortgage crisis and the developing housing recession. In the Nov. 5 New York Times article, “Homeowners Feel the Pinch of Lost Equity,” Peter Goodman wrote: “From 2004 through 2006, Americans pulled about $840 billion a year out of residential real estate, via sales, home equity lines of credit and refinanced mortgages, according to data presented in an updated working paper by James Kennedy, an economist, and Alan Greenspan, the former Federal Reserve chairman.
“These so-called home equity withdrawals financed as much as $310 billion a year in personal consumption from 2004 to 2006, according to the data. But in the first half of this year, equity withdrawals were down 15 percent nationally compared with the average for the last three years, and consumption supported by such funds plunged nearly one fourth, according to the Kennedy and Greenspan data.”
U.S. home sales dropped 8.0 percent in September to an annualized rate of 5.04 million units — the lowest pace since the National Association of Realtors (NAR) began tracking this data in 1999, the NAR says. The September decline followed a 4.7-percent drop in August, a 0.2-percent fall in July, and a 3.7 percent decline in June. Also, in September, the most recent data available, home prices fell 4.2 percent, while the month supply (inventory) rose to 10.5 months.
New home sales in September jumped 4.8 percent following a 7.9-percent decline in August. However, housing starts plunged 10.2 percent in September to 1.19 million units — a 43-percent decline from the recent high in 2005, according to the NAR.
Consumer confidence has definitely taken a hit in the wake of the decline in residential real estate sales. The preliminary November Michigan sentiment survey revealed a sharp drop in sentiment from 80.9 in October to 75.0 in November. Higher energy prices, a weak housing market, and overall concerns about the U.S. economy were blamed for the decline.
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