by Calculated Risk on 5/16/2006 04:39:00 PM

CNNMoney reports: Housing slowdown to be widely felt

You don't need to be in the market to buy or sell a home to be affected by the cooling housing market.

Economists, investors and the Federal Reserve are watching home building and home sales carefully because the sector has reached so far throughout the economy in recent years, lifting all manner of consumer spending and economic activity.

Now that the housing "bust" has started, the questions are: 1) How quickly will housing sales and prices fall? and 2) What will be the impact on the US and World economies? I will give my views in future posts - here is more from the CNNMoney article:

Even those who believe that real estate prices are not in any danger of collapsing agree ... that the reach of real estate extends far beyond those actually building, buying or selling homes.

"Housing accounts for between a fourth and a fifth of the GDP (gross domestic product)," said Walter Molony, spokesman for the National Association of Realtors, referring to the broad measure of the nation's economic activity. "So many other industries see sales tied to the purchase of a home. We get calls from Singer sewing machines about our home sales statistics."
...
David Seiders, chief economist for the National Association of Home Builders, agrees ... that it's been the run-up in home values that has helped fuel consumer spending in recent years, even if he also believes that home prices will continue to climb, albeit at a slower pace.

"It's pretty clear that equity growth is what's fueling spending and allowing a negative savings rate," said Seiders.
...
"As we try to clear this inventory of unsold homes, there's going to be a lot of layoffs in construction, and less revenue from the creation of housing," said [Jeoff Hall, the chief U.S. economist for Thomson Financial].

Residential contractors added nearly 200,000 jobs last year during the white-hot building boom, or about one job out of every 10 created in the broader economy.

That means that if the National Association of Homes Builders is correct ... that's 375,000 fewer construction jobs, or the equivalent of about three companies the size of General Motors.
...
"If you're looking for evidence the economy is slowing, it's housing," said [Dean] Baker [co-director of the Center for Economic and Policy Research]. "Everything we've seen the last four to five months shows pretty clearly that housing is slowing."