Sales of U.S. previously owned homes plunged 27 percent in July, twice as much as forecast, evidence foreclosures and limited job growth are depressing the market.
Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.
I'd like to see some redeeming signs in the economy, but I don't.
Thinking about the easy credit pitches (and fallen for them myself) in the years before the housing market collapse, where you were told by the 'smart' people to pull equity out of your home to fuel consumer spending because prices would only continue to rise, it would seem that this news makes a consumer driven recovery unlikely, as fewer consumers will be able (or willing) to continue to buy unnecessary items, resulting in a prolonged reduction in demand. Which has led to a reduction in income for business, which leads to layoffs and higher unemployment, which leads to further reductions in demand, etc., etc., etc., until the market stabilizes itself perhaps years down the road.
Now, if you're more of the libertarian philosophy, you're probably willing to accept this as part of the natural market cycle, suck up the hangover pain, and eventually things will right themselves. It's a position I'm sympathetic to, because market intervention can be costly in terms of money and opportunity, and government action generally adds inefficiencies to a market which can have negative externalities.
But I'm also sympathetic to the more liberal position, where we need to back strong government intervention on the demand side of the economy to spur consumer spending, increase demand, and tax breaks and incentives for small businesses to hire new employees. And given that this hangover will have real harmful effects on businesses and families, and acute suffering, I'm more inclined to support economists like Paul Krugman who are advocating a larger stimulus package.