More Macro Effects of Housing Crisis - Housing Tracker

Quotes of the Day

“Continued housing deflation of several trillion more dollars now threatens to impact the real economy which in turn might produce a reversal of financial market fortunes.” – Bill Gross, manager of PIMCO, the largest bond fund in the world. (PIMCO Newsletter, May 2008)

"It's a one-shot deal. At best, it will lift the economy for a little while." - Lacy Hunt, an economist with Hoisington Investment Management Co. in Austin, Texas, on the tax rebate checks being sent out to Americans now as part of a U.S. government $152 billion stimulus package. (Johnstown Breeze, Apr. 30th)

Macro Effects of the Housing Slump

Low Spending Is Taking Toll on Economy. “Commerce Department: The economy continued to stagnate during Q1’08, with a sharp pullback in consumer spending the primary factor at play… Consumer spending fell for a broad range of goods and services, including cars, auto parts, furniture, food and recreation, reflecting a growing inclination toward thrift. Areas in which spending rose were predominantly those not considered optional purchases, including health care, housing and utilities… Growth was hampered in Q1’08 by a continued decline in home construction, which fell for the ninth straight quarter, and by a pullback in investments for business equipment and buildings.” (NY Times, Apr. 1st)

Hamptons Home Prices Decline on Wall Street Job Cuts, Economy. “New York-based financial firms, hit by mortgage-related losses and writedowns, have cut about 31,500 jobs over the last 10 months… Wall Street's four biggest firms set aside 23% less money to pay compensation and benefits to employees in Q1’08 compared with Q1’07… Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. recorded a combined $14.1 billion in first-quarter compensation, compared with $18.2B in Q1’07… At Goldman compensation fell 35% to $4B from $6.1B…Wall Street firms typically set aside money for compensation and benefits throughout the year. About 60% of the total is usually used to pay year-end bonuses.” (Bloomberg, Apr. 30th)

From Housing to Employment: We're in Big Trouble. “Rising unemployment due to the slowdown will force quite a few people to relocate and walk from their mortgages… Cape Coral/Ft. Myers and Naples, Florida, Las Vegas and many areas of California, areas that have little industrial, agricultural or other stable bases to support the populations, could see a Great Depression-like migration to areas of the country that do have job opportunities. Homes once commanding $400,000 in 2005 could see values in the $100,000 range or less in real terms. Because… the median household income in these areas could drop to $25,000 from the current $50,000… Many households will experience a job loss for least one wage earner.” (Hugh Thomas in Seeking Alpha, Apr. 30th)

'Tax Rebate' Checks Expected To Yield Short-Term Benefits, Long-Term Trouble. “The Federal Reserve has moved dramatically… with interest-rate cuts and financial support activities to ease the liquidity squeeze. As a result, the economy's money supply has grown at a 13% annual rate [in Q1’08]... Lacy Hunt, an economist with Hoisington Investment Management: Even this growth has been "more than entirely neutralized" by a dramatic decline in the 'velocity of money', or how often the money is spent. It sits unused in financial accounts as banks and other financial institutions try to rebuild capital after suffering severe losses from subprime mortgages [and] collateralized debt obligations… In the current massive credit crunch, velocity has declined at a 2.3% per annum rate.” (Johnstown Breeze, Apr. 30th)

Iowa's Regency Homes Shuts Down Operations. “Executives at Iowa-based Regency Homes effectively shut down home building operations late last Friday, April 25, halting construction and laying off more than 100 workers. The company has operations in Ames, Cedar Falls, Cedar Rapids, Des Moines, and Iowa City. Management's decision came after it was unable to renew a lending agreement with Wells Fargo (WFC) that had expired in December… In Iowa, this development has significant economic consequences. Regency may have been the largest home builder in Iowa, but Wells Fargo is the state's largest employer. The financial institution's mortgage origination business is headquartered in Des Moines and employs roughly 12,900 people.” (Big Builder Online, Apr. 28th)

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