THE POP HEARD 'ROUND THE WORLD
I'm not even gonna go off on the goofy headline describing "drooping" prices, nor will I discuss the "low-ball bidders," "persnickety buyers," or cooling investments the article addresses. No. Instead, I'll note once again that this is a serious turning point for our economy. The housing bubble -- supported by the Fed through massive influxes of liquidity and low interest rates following 2000's tech bubble collapse and 2001's terror attacks -- supported the U.S. economy. It kept an investment vehicle alive for those who ran from the NASDAQ; it provided a conduit for much of the private, foreign money that entered the country; it supplied jobs; and perhaps most importantly, the "value" of all the new homes created a personal ATM for every man, woman & child.
Say what, you ask? A personal ATM? Well, as interest rates plummeted and housing appraisal values (and purchasing costs) went up, folks took out second mortgages and home equity loans. Even if they didn't, looking only at the supposed value of their homes, as opposed to any real assets, they certainly saw themselves are far wealthier than they were. Through either tactic, this excess cash seemed free . . . so long as the homes retained their value. Without even going into the manifold problems associated with this mania, such as ARMs, negative amortizing of equity with interest-only mortgages, and insane prices, there's a bigger problem: because much of the economic "growth" over the past few years was tied to housing, what on earth does that mean now that rates are going up, housing starts are dropping, and inventories are going up? What happens now that the industry that supported booming private sector employment and supplied the liquidity to pay for our consumer-driven economy dries up?
Trouble, that's what. This piece from Whiskey & Gunpowder gets further into some of the underlying factors, and also adds rhythm to the "Don't Believe The Hype" drum that I've banged here from time-to-time.