Friday, November 18, 2005


According to the U.S. Commerce Department, the American housing bubble is at best deflating:
Housing starts tumbled in all regions of the United States last month, falling an average of 5.6 per cent to an annual rate of 2.01 million units, the U.S. Commerce Department reported yesterday...

Prospective home buyers are typically paying roughly $75 (U.S.) more a month for every $100,000 of mortgage money than they were just two years ago -- $624 a month versus $550.

Even more worrying for many economists is the damage that a stalled housing sector could inflict on the broader economy. In record numbers, homeowners have been cashing in the accumulated equity to renovate, buy cars and generally sustain their lifestyles.
The article cites several economists to the effect that the drop isn't likely to lead to a burst bubble, and shouldn't have too many implications for the wider economy just yet. And it would certainly be for the best if the effects of the drop can be minimized. But it's still worrisome to see such a massive change, particularly when interest rates seem likely to continue rising and therefore prevent any great rebound.

Speaking of rebounds, the article tosses in one small sentence which may be the most significant information discovered by the report:
Interestingly, there was no evidence of post-hurricane rebuilding in the Gulf states.
Let this be a reminder that whatever measures do need to be taken, whether in the housing market or elsewhere, nobody can rely on the Bush administration to ensure that they're accomplished. Presumably there are many reasons for the lack of reconstruction, but it seems obvious that the money approved by the administration so far hasn't managed to do any good, either for the construction industry or for the families whose homes were destroyed. And that lack of effective action will be all the more glaring if the economists are wrong and the effects of the drop spill over into the wider economy.

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