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Housing Slump Seen Weighing on Economy
Yahoo Finance ^ | 1 January 2007 | Martin Crutsinger

Posted on 01/01/2007 8:34:27 PM PST by MeneMeneTekelUpharsin

Analysts Say Housing Slowdown That Hit U.S. Economy Will Persist Into 2007

WASHINGTON (AP) -- The slowdown that hit the U.S. economy will persist into 2007 as the once red-hot housing market continues to suffer through a serious correction, analysts say. As the new year begins, many private analysts are forecasting the economy will perform at the slowest pace in five years, a full percentage-point lower than growth in 2006. One such analyst is Nariman Behravesh, chief economist at Global Insight, a forecasting firm. "The recession in the housing market does not seem to have had much of an impact on the consumer," he said. "The bad news on housing has been offset by good news on wages, jobs and the stock market." While the slowdown will cause the unemployment rate to rise, economists remain hopeful that the economy will remain on track to achieve the Federal Reserve's hoped-for "soft landing." That is described as a scenario in which growth slows enough to dampen inflation but not trigger a recession.

But there are plenty of risks that could make the landing more bumpy -- everything from another surge in oil prices to a more severe collapse in housing, which could rattle consumer confidence. At the moment, though, economists like Behravesh and David Wyss of Standard & Poor's of New York feel there is only a one-in-four chance that the current slowdown will turn into an actual recession. The reason for the optimism is that American consumers, while buffeted in 2006 by record-high gasoline prices and a slumping housing market, have kept spending, helped by a solid jobs market. Consumers were also helped by a retreat in gasoline prices from record highs above $3 per gallon last summer. The relief in energy prices has given consumers money to spend on other items, and this has meant that consumer spending, while slowing in 2006, did not collapse.

The overall economy, as measured by the gross domestic product, expanded in 2006 by 3.3 percent, many economists believe, just slightly above the 3.2 percent GDP growth of 2005. That increase reflected a surge at the start of the year as the economy rebounded from the impact of the 2005 Gulf Coast hurricanes and much slower growth starting in the spring, as consumers were hit by rising interest rates, soaring energy prices and the slumping housing market. For 2007, Global Insight is forecasting a GDP growth rate of just 2.3 percent, a full percentage point lower than in 2006. That would be the slowest pace since the economy grew by just 1.6 percent in 2002, a year when the country was struggling to recover from the 2001 recession. The slower growth means that unemployment will be rising, with many analysts expecting the jobless rate to hit 5 percent in 2007, up from a five-year low of 4.4 percent in October. That would still be a relatively low overall civilian jobless rate in historical terms.

For certain sectors of the economy, job losses will have a much bigger impact, however. Economists at Goldman Sachs estimate that housing-related industries -- construction, furniture manufacturing and sales, real estate agents, mortgage brokers -- will see more than 1 million jobs evaporate over the next two years because of the housing slowdown after five boom years for sales. The auto industry also is expected to suffer as U.S. car companies complete announced plans to trim their work forces in the face of stiff foreign competition. Troubles in auto-related industries have already contributed to recession-like conditions in many parts of the industrial Midwest while many southern states are confronting job losses as a result of a surge of Chinese imports of textiles, clothing, paper and furniture.

For most of the country, however, the economic slowdown won't have much of an impact as long as there are no unexpected shocks that could send growth lower than forecast. "Betting that nothing goes wrong could turn out to be a bad bet," said Wyss, Standard & Poor's chief economist. "It wouldn't take much of a disruption in the Middle East to send oil prices back up again." Economists believe that the nationwide impact of higher layoffs will be held in check by the Federal Reserve, which will move starting in the middle of the new year to counter rising unemployment by cutting interest rates to boost economic activity. By that time, economists expect inflation will have retreated back into the 1 percent to 2 percent Fed comfort zone for prices excluding food and energy. The latest reading had these prices rising by 2.2 percent, year over year, in November, down from a 2.4 percent increase in October.

If the Fed succeeds in its soft-landing goal, many economists believe the stage will be set for a solid rebound to a 3 percent-plus GDP growth rate in 2008 and beyond. That would resemble the pattern of the mid-1990s, the last time the Fed succeeded in bringing about a soft landing for the economy. "I think 2008 will turn out to be a very good year for the economy," said Mark Zandi, chief economist at Moody's Economy.com. "The Fed will feel more comfortable with stronger growth because inflation will be under control."


TOPICS: News/Current Events
KEYWORDS: economy; housingslump; realestate; softlanding
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Blah, blah, blah. These guys keep talking about a housing slump and nothing happens. Nothing dramatic is going to happen except that the stock market indexes are going to go up, up, up. Blah, blah, blah.
1 posted on 01/01/2007 8:34:30 PM PST by MeneMeneTekelUpharsin
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To: ex-Texan

FYI -- ping the others.


2 posted on 01/01/2007 8:37:39 PM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: MeneMeneTekelUpharsin

Well, when one runs too far ahead of one's own derriere, one is likely to fall on one's face [remember 1999?]. So, the market spurt of 2006 autumn will wear out, and hopefully without too much disruption. And if 2008 turns out to be a good solid year, it is OK, for it is an election year.["Are you better off now than 4 years ago?"]


3 posted on 01/01/2007 8:42:44 PM PST by GSlob
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To: MeneMeneTekelUpharsin

Economists believe that the nationwide impact of higher layoffs will be held in check by the Federal Reserve, which will move starting in the middle of the new year to counter rising unemployment by cutting interest rates to boost economic activity.


Typical Federal Reserve, too little too late. They steer the economic ship like they were driving a Ferari.


4 posted on 01/01/2007 8:45:21 PM PST by freedomfiter2
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To: MeneMeneTekelUpharsin

is a slump the same as a burst bubble ?


5 posted on 01/01/2007 9:05:25 PM PST by stylin19a ("Klaatu Barada Nikto")
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To: MeneMeneTekelUpharsin

It is interesting to click on CNN's link about Housing prices. When you browse through the regional markets you discover there really is no housing bust. Houses are going down in a few urban coastal locations. But the bulk of the US continues to experience rising home values.

http://money.cnn.com/popups/2006/fortune/invguide_realestate/index.html?cnn=yes


6 posted on 01/01/2007 9:06:31 PM PST by lonestar67 (Its time to withdraw from the War on Bush-- your side is hopelessly lost in a quagmire.)
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To: MeneMeneTekelUpharsin

How does one make money in a declining housing market? In a declining stock market, one can sell stocks short. Is there an analog to selling short in the housing market?


7 posted on 01/01/2007 9:36:18 PM PST by posterchild (Spent some money on women and beer, the rest was just wasted.)
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To: MeneMeneTekelUpharsin

i don't know about the rest of you but the state I live in is in such a terrible recession that people are foreclosing like crazy and leaving the state in droves. its worse here now(in all ways) than it was in the late 70's/early 80's!


8 posted on 01/01/2007 9:46:31 PM PST by annelizly
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To: MeneMeneTekelUpharsin

Lets be honest, the housing slump is hurting a lot of people in the real estate industry. How will all those mortgage brokers, housing appraisers and loan officers continue to make such a good living.


9 posted on 01/01/2007 11:00:52 PM PST by art_rocks
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To: annelizly
i don't know about the rest of you but the state I live in is in such a terrible recession that people are foreclosing like crazy and leaving the state in droves. its worse here now(in all ways) than it was in the late 70's/early 80's!

Which state would that be?

10 posted on 01/02/2007 5:03:04 AM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: art_rocks
How will all those mortgage brokers, housing appraisers and loan officers continue to make such a good living?

They will see to it that that make a good living, I know some of them. If they don't, they'll be the first on the train out of Dodge and everyone ELSE will get burned first. Count on it.

11 posted on 01/02/2007 5:04:18 AM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: annelizly

Please, which state?


12 posted on 01/02/2007 9:10:57 AM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: MeneMeneTekelUpharsin

Hope it picks up in our Smithfield, VA area, as our house has been in the market since 1 August...we are very anxious to get it sold; the market has truly slowed down...there just haven't been a whole lot of folks looking lately. :-(


13 posted on 01/02/2007 1:09:59 PM PST by nfldgirl ("I love a good rant every now-n-then!")
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To: Mean Maryjean

Thanks for the info. Wish Annie would respond.


14 posted on 01/02/2007 1:42:31 PM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: art_rocks

who cares. those people produce nothing in the economy, all they do is ride a bubble, and help drag people who actually want to buy homes to live in them, into deeper and deeper debt instruments to afford the inflated prices.

flush them all out of the system.


15 posted on 01/02/2007 1:46:47 PM PST by oceanview
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To: Mean Maryjean

because few sellers (not you personally) lower their prices. sellers have an expectation that the peak value their home was worth, at some time in the past, is what they SHOULD receive for it. so they choose to wait rather then lower their asking price.


16 posted on 01/02/2007 1:49:28 PM PST by oceanview
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To: MeneMeneTekelUpharsin

michigan


17 posted on 01/02/2007 4:18:04 PM PST by annelizly
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To: annelizly

Thanks Anne. Michigan has been depressed for quite some time, though, and is not really representative of the country as whole. Or, is it?


18 posted on 01/02/2007 4:40:17 PM PST by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: posterchild

Make money by helping people avoid foreclosure and save their homes through Chapter 13 Bankruptcy, or to eliminate their debts altogether through Chapter 7.

Oh, but you'd have to be a lawyer.


19 posted on 01/02/2007 4:47:14 PM PST by Unknowing (Now is the time for all good men to come to the aid of their country.)
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To: MeneMeneTekelUpharsin

I don't know. in the 10 years prior to 9/11 it was TOTALLY BOOMING here!!!

There was more work and money going around than people could stand. It rocked.

after 9/11 we started a steady decline.

I think that michigan is definitly hit harder than most any other state, mostly because our 2 industries are auto and resort vacationers(which stops with any sign of high gas prices and possible economic downturns.)

It doesn't help that we have a governor who hasn't done a thing to help.


20 posted on 01/03/2007 12:26:52 PM PST by annelizly
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