Saturday, December 29, 2007

What to think of declining home sales

Superficially, declining home sales are a significant black mark and drag on the U.S. economy. That said, the ongoing decline is not really that surprising or totally unexpected and really not that big a drag on the overall economy. Sure, the media and a lot of people on Wall Street and politicians are making a really big deal out of it, but the simple fact is that the actual data is not as scary as the stories that people are concocting and slinging around as if they were facts.

The good new is that the "bad" subprime housing market is virtually (if not absolutely) gone, mortgage rates remain quite low, and consumers are finally beginning to see some more attractive deals as prices moderate and even decline. The common story line we are hearing lately is that consumers are holding off as they wait for even better deals.

This is an adjustment, not an overall economic depression or even a recession.

Not only have we not seen even one down quarter for the overall economy in this business cycle, but nominal GDP growth has remained very strong even after the housing drag is accounted for.

I will refrain from trying to predict precisely when housing demand will stabilize, but will certainly not be a multi-year wait.

-- Jack Krupansky

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