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Restructuring pros have been frustrated by a resilient economy that kept many marginal businesses afloat. But there are more signs that housing is slowing down much more dramatically and this could, in turn, affect spending on goods and services by consumers who used their homes as ATMs. While the nation's central bankers have argued that housing will not affect the broader economy it is hard to see how U.S. growth will not be affected by a drop in housing activity.
First off, several mortgage companies that catered to less-credit-worthy consumers have closed their doors in recent months. At the same time, many lenders have signaled that they are now rethinking the easy credit standards. The end of easy credit conditions may actually increase the number of delinquent home loans because consumers have been able to move from one loan to another with ease. Now, with tougher credit standards, borrowers with adjustable rate mortgages will have a tougher time paying off the loans by refinancing them and shifting into another mortgage. This in turn could force other lenders to step back further for mortgage lending — at least to less credit-worthy borrowers and actually exacerbate problems in housing. Friday's report on housing starts was pretty bleak and adds to the ugly stew. The drop in housing starts — for single-family homes and apartments — is sure to erode demand for building products, appliances and raw materials. Starts for single-family homes dropped 11.2% and multi-family homes dropped 24.2%. Three out of four regions saw a decline in starts - notably the West which includes California. As economists at Deutsche Bank point out, the big decline in the West was mostly likely in California, which could be unsettling since it accounts for 15% of US GDP. Year over year, the picture in housing looks even bleaker. Housing starts are down 38% over the last twelve months. Also, the outlook for activity in the spring season is not exactly upbeat. Permits for home construction were down 2%, largely because of a decline in single-family housing permits. According to Deutsche Bank economists, residential construction layoffs should rise "sharply" in coming months. At the same time, a recent report from Harvard University's Joint Center for Housing Studies noted that there has been a slowdown in home remodeling. "The 2006 slowdown in the broader housing sector was reflected in the remodeling industry with many homeowners putting their improvement activity on hold until the market stabilizes," Nicolas Retsinas, director of the center said in a prepared statement. The drop in housing activity is sure to slow spending among not only consumers, but corporations. If you are a window producer or door manufacturer, won't you think twice about advertising your products? If sales slow at Home Depot, will its management spend less on advertising on cable television channels like House and Garden Television (HGTV)? Does this not then prompt the cable channel to rethink its spending plans? Will the worker or carpenter who sees a drop in overtime hours at the window or door factory not reconsider some spending? Does that drop in spending come in the form of fewer visits to electronics or clothing retailers?—Aleksandrs Rozens Categories Deal Video
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