Downturn In Real Estate Could Threaten US Economy
Thursday November 23, 2006
According to the November 17 Commerce Department Real Estate Report, new home permits were at 1.535 million, 28% below the October 2005 rate.
Real Estate is a Leading Indicator for the US Economy
New home permits are usually issued about six months before the new home is completed and the mortgage closes. This means that permits are a leading indicator of new home closes. A slump in permits means that new home closings will continue to be in a slump for the next nine months.A decline in new home permits could threaten the economy because real estate contributes 10% of the total US economy's output. If real estate declines, so do construction jobs, thus potentially increasing unemployment. A decline in new home closings reduces the value of everyone’s homes, which reduces home equity loans, which reduces consumer spending. This will contribute to a downward spiral in the economy...hopefully not enough to trigger a recession. The only good news about lower home prices is that it lessens the chances of inflation.
Comments
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