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MAY 2008 W5 ALERT Economic Rain Keeps Falling; Consumer Confidence Hits 16-Year Low New data shows continued economic distress, but is there light on the horizon? <Reuters-New York Times-AP><May 28, 2008>This week brought a new batch of economic reports including housing-related data and consumer confidence data. The data continues to paint a bleak picture on the state of the economy in general, and the continued stress in the housing industry in particular.
According to a report by the New York Times, some economists are suggesting that the housing industry may be in for a protracted period of “pain” that will last for several more years.
 One report, detailing new home sales, showed what some hoped was a positive reading with new home sales increasing 3.3%, the first sales increase since October, 2007. Yet many industry analysts suggest that it is too soon to tell if this indicates that new home sales have turned around and point out that this rate is still near its lowest level in 27 years…and a full 60% below the 2005 peak.
To make matters worse, the rising tide of home mortgage foreclosures threatens to further stress already bloated levels of existing inventories of homes sitting on the market unsold. With sales rates at their current level, the existing inventory of 4.5 million unsold homes will take eleven months to clear through.
But with credit remaining tight and business levels showing sluggishness in many industries…it appears that a turnaround of the economy is still somewhere off on the horizon.
Existing home sales have declined for the first four months of the year by 20% compared to the same period last year. New home sales, despite this month’s increase, are down 42% for the first four months of the year. Housing prices have also declined an astonishing 14.1% for the first quarter of the year…its steepest rate of decline in twenty years.
 All of this is making for skittish buyers, according to the story in the New York Times, who quoted one buyer who said, “I’m not afraid of the monthy mortgage payment, and I am not afraid of taxes, but I am afraid of losing the value I am putting in.” The buyer went on to say, “I believe the right deal will come along, and I am in no rush.”
Some analysts note that the home price decline, as reported in the Standard & Poor’s/Case-Shiller index, is the clearest indicator that the housing market slump is deepening. Of the top twenty metro markets being monitored, nineteen showed declines…fifteen set record lows. And, according to the Associated Press, six markets had declines of more than 20 percent.
Between the housing market collapse, the run-up in energy prices to all-time highs, and radical increases in basic food prices – the American consumer is pressured more than at any time in the previous decade.
Perhaps a reflection of this stress, the Conference Board’s latest reading on their Consumer Confidence Index showed another monthly decline to a reading of 57.2 in May…down from 62.8 in April. The index, which measures a consumers attitude about both their present situation and their expectations for the future, showed declines on all measures.
 According to the Director of The Conference Board Consumer Research Center, Lynn Franco, “The Consumer Confidence Index now stands at a 16-year low,” with this new reading dropping below a reading of 54.6 back in October 1992.
Eventually, the situation will stabilize and markets always tend to correct themselves. Builders, for example have cut production back to virtually nothing as they “wheel and deal” to work down their existing inventory. This has resulted in a decline in inventory of new housing…and their deals are helping to make purchasing more affordable.
Still, there is a way to go before the market “troughs” and begins a  sustainable growth pattern.
Get your umbrellas out and your rain coats on! |
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