Milestones : Housing slowdown could tip economy into recession
Housing slowdown could tip economy into recession about EU enlargement
UNITED STATES


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Over? The US building boom is faltering

The roof hasn’t caved in yet on the US housing market, but home prices are slipping, and inventories of unsold homes are piling up, sending shock waves through the economy. With all-important consumer spending threatened by declining home equity levels, some economists are worried that the expected slowing in the US economy later this year could turn into a recession.

The housing market has been such a big contributor to economic growth since 2001, economists say— accounting for threequarters of the nation’s job growth—that the lack of this stimulus will cause a broad slowing in economic growth. Not only will construction and home-furnishing sectors be dampened, but consumers who pay for their purchases of a wide range of goods and services with money from mortgage refinancing and home-equity loans also will be forced to tighten their purse strings.

The Federal Reserve is watching closely for signs that the housing slowdown might be faster than expected as a result of rising interest rates and lack of affordability. While the Fed expects the slowing to be orderly and moderate, economists say recessions usually have followed declines in home sales such as those that have occurred since last July. The number of homes sold has declined in every month since August 2005, according to the National Association of Realtors. Meanwhile, home prices in the first quarter of 2006 fell 3.3% from the fourth quarter of 2005, it says. Building permits declined for a third consecutive month in April of this year, contributing to an unexpected decline in the Conference Board’s index of leading economic indicators. Housing starts are also slowing.

Confidence among homebuilders has fallen to the lowest level in 11 years, according to the National Association of Home Builders. Speculators who bought homes to make quick profits are bailing out and putting properties back on the market. A lot of signs are all pointing in the same direction.


Gordon Platt
 

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