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Bracing for a housing ripple effect

Alisa Roth Sep 27, 2007

Bracing for a housing ripple effect

Alisa Roth Sep 27, 2007


KAI RYSSDAL: Another thing economists are worried about right now is housing — and they’re really worried about it. There was a report earlier this week that sales of existing homes have hit a five-year low. Today, the Commerce Department reported sales of new homes dropped more than 8 percent last month — a seven-year low.

Home builders, as we’ve mentioned, are getting hurt. But Marketplace’s Alisa Roth tells us that’s not the only industry where we’re going to see some ripples.

ALISA ROTH: Ask economist Ian Shepherdson what he thinks of today’s numbers and he doesn’t hold back.

IAN SHEPERDSON: We’ve now moved from correction to meltdown in the housing market.

Shepherdson is chief U.S. economist at High Frequency Economics.

SHEPERDSON: New home sales are now down about 40 percent from the peak they reached in summer 2005, and unfortunately there’s just no sign at all that that 40 percent decline is the end of the story. And there’s plenty of indication that it will just get worse.

Worse could mean the housing recession turns into a general recession. As people stop buying houses, homebuilders stop building them. Carpenters, plumbers and others who work in the industry have less work or get laid off. Steven Rick is an economist at the Credit Union National Association.

STEVEN RICK: Because these plumbers, electricians and carpenters are not working, they’re purchasing less goods and services from the communities that they live in.

The effect on local communities can be harsh. But the reverberations often extend beyond the city limits.

RICK: As homebuilders in your local community may be building fewer homes, that means the appliance manufacturer say down in Georgia, or the carpet mill that would have made carpets that went into the house, they’re also laying off people.

Right now, the trouble is concentrated in a few parts of the country. Susan Wachter studies real estate at Wharton.

SUSAN WACHTER: One are those that are suffering from general doldrums in the economy — that’s the old Rust Belt. Secondly, we have the parts of the country that are really challenged by high housing prices. We’re talking about the two coasts. To a lesser extent, but also important, we have overbuilding in second-home markets, condo markets, such as Las Vegas.

And she says it’s getting harder for people to borrow against their homes. Houses are worth less, and banks aren’t keen to make loans against collateral whose value is dropping fast.

In New York, I’m Alisa Roth for Marketplace.

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