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The 2007 Housing Market

4 May 2011 No Comment

By Helen Kaiao Chang

The biggest industry at stake: Housing.

We all know how crazy San Diego’s housing market got in recent years. Now, the party is over. In a way, it’s a good thing. “It’s time we were pausing to catch our breath,” said Cunningham.

In fact, all three economists surveyed said they thought housing prices would drop by five percent in 2007, before heading up again in late 2007 and early 2008, because of consistent demand.

The housing sector has the largest domino effect on the rest of the economy. The greatest impact: jobs and disposable income.

Here’s what happens: Fed raises interest rates =>housing sales slow => building development slows => construction job lay-offs increase => less spending in the economy => slower economy.

The housing market is already putting on the brakes. The stats are:

  • Fewer workers in the construction industry.
  • Fewer building permits.
  • Retail store Home Depot posted decreased sales in third quarter 2006.

Rate hikes will hit paychecks hard. Because of the high number of homeowners with adjustable interest rate loans – 30 percent of all loans – homeowners will be pressed for funds.

Here’s the scenario: Fed raises interest rates => higher monthly payments on interest-only loans => more salaries spent on mortgage payments=> less disposable income => slower economy.

Housing equity is also topped out. Because so many people sucked money out of their equity – adding some $9 billion to the economy in recent years –this source of money in the economy is no longer available, said Cox.

The domino effect of the housing market spreads to other industries, including: lending, financing, broking, escrow, suppliers and retail stores.

A rate hike could send this sector over the edge. “The housing market is at a very vulnerable point,” said Cox.

 

This article is part of a comprehensive economic outlook. See related stories:

Growing a Basket of Industries
2007’s Strongest Industries
Population Changes & Employment
Other Economic Insights

 

Follow Helen on Twitter @helenchang.

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