Friday, August 25, 2006
An economy dependent on low gas prices . . .
to leave room for McMansion mortgages has a hard time with $70-75/bbl oil.
Housing Gets Ugly
By PAUL KRUGMAN
Bubble, bubble, Toll’s in trouble. This week, Toll Brothers, the nation’s premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.
Toll’s announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders’ confidence is at a 15-year low.
. . .
The current downturn, Mr. Toll now says, is unlike anything he’s seen: sales are slumping despite the absence of any “macroeconomic nasty condition” taking housing down along with the rest of the economy. [?????? Oil prices?????]
He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop!
. . .
As far as I know, Nouriel Roubini of Roubini Global Economics is the only well-known economist flatly predicting a housing-led recession in the coming year. Most forecasters consider his call alarmist, and many Federal Reserve officials remain optimistic. Last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, dismissed “Eeyores in the analytical community” who worry about a possible recession.
Call me Eeyore. While I don’t share Mr. Roubini’s certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.