Alarming Economic Signs
by James Buchanan
The Dow Jones dropped 367 points on Friday and 571 points for the week, but these recent drops may just be the tip of the iceberg. Much more alarming is the ever-increasing price of gold, which hit a twenty year high of $771 per ounce. Investors always buy gold (and run up the price) when they lose confidence in the economy. On top of all this, the home mortgage industry continues to be in bad shape.
A recent news article reports “September homes sales in Northern California sunk to their lowest level in two decades as mortgages became harder to get, a real estate research firm said Thursday. A total of 5,014 new and resale homes and condos were sold last month in nine San Francisco Bay area counties — a 40 percent decrease from the same period a year ago, according to DataQuick Information Systems… Sales plunged 31.3 percent from August as lenders, stung by a nationwide credit crunch, put the brakes on many loans above the $417,000 mark, or so-called ‘jumbo’ loans. Some of those jumbo mortgages are being written, but credit requirements have tightened and interest rates have risen, DataQuick reported. The month before was not much better, NBC11 reported. New home sales in California fell nearly 45 percent in August compared to August 2006,”
Unfortunately the cost of a perfectly ordinary house exceeds $417,000 in much of America today so these restrictions are going to influence many ordinary people trying to buy a home. The home loan crisis will be disastrous for a few people, but overall a huge plunge in home values won’t change things much –at least for home-owners. People will just stay living in their same old homes. People buying homes will just keep paying their mortgages. The crisis will be bad for real estate agents and bankers, but they’ve been so over-paid for so long, they aren’t going to starve if home sales drop to zero for a while. The people, who will be badly affected by a slump in sales, are folks in the construction industry. If young families can’t qualify to get the loans to buy an (overpriced) new home, then construction firms will quit building new homes. Why build a house if you can’t sell it for a decent profit? (more…)