Economic Slowdown Could Last As Long As Housing Slump
The struggling U.S. economy could be in store for stagnant growth for an extended period of time. At the moment it’s difficult to see any kind of recovery until the housing market can rebound.
The number of unsold homes continue to build up at record levels, where it hit a 23 year high in the month of April. This has led many analysts to the obvious conclusion that the housing slump has yet to hit bottom as is far from over.
Resales of U.S. houses and condos dropped 1% to a seasonally adjusted annualized rate of 4.89 million from 4.94 million in March. Economists expected sales to fall to 4.83 million.
The number of homes on the market represented an 11.2 month supply at the April sales pace, the biggest since the combined single-family/condo records began in 1999.
With the glut of supply on the market, how low home prices will fall is anybody’s guess and despite the Fed’s best efforts the mortgage market has remained tight What is doubly troubling is that prices are falling despite the fact that the economy is entering an inflationary period, so that in actuality the real values of homes are falling faster than they appear. The loss of real wealth for many Americans has put a damper on consumer spending which makes up a large factor in fueling economic growth.
There could also be more trouble in store ahead for credit markets as mortgage delinquencies continue to rise. It could spell another wave of writedowns for an already beleaguered financial services sector.
Another question for financial markets, is how long can the Fed keep rates at their current level. A downward spiraling dollar and soaring energy prices will put a lot of pressure on the Fed to reverse their rate cutting disposition.
