No Good News


Today’s Wall Street Journal ( splashed the headline “Decline in Home Prices Accelerates” across the front page. The subtext read, ”Fed’s Efforts Have Only Muted Effect On Mortgage Rates.” The accompanying article made clear that home prices are heading south while mortgage rates are going north. Not a happy combination.

The week began with the National Association of Realtors’ February 25 report ( that existing-home sales slipped again to a 4.89 million rate. If you update the chart below with that figure, you can appreciate the relentless slide.

Existing-Home Sales

(Click on chart to enlarge)

Recessions shaded

And, as if that was not bad enough, today the Census Bureau informed us ( that only 588 thousand new homes sold in January. Update the chart below with that figure and you’ll see that, if this trend continues for a few more months, we’ll be back to numbers from the 1990-91 recession. That’s brutal.

New-Home Sales

(Click on chart to enlarge)

Recessions shaded

The decline in consumer confidence reflects these trends. Yesterday the Conference Board reported ( consumer conference fell to 75 in January. That’s a recession reading in the chart below.

Consumer Confidence

(Click on chart to enlarge)

Recessions shaded

Yet, in a report issued on February 20 (, before the release of these dismal consumer confidence numbers, the Conference Board remained upbeat. The report’s headline summed it up: “Recession Unlikely, Housing Sector Correction Nearly Over.”

That optimism is founded on the belief that housing’s troubles are limited, encapsulated and will not infect the rest of the economy. But there are other points of view.

On the same day as the Conference Board’s report that recession was unlikely, Prof. Martin Feldstein published an op-ed piece in The Wall Street Journal ( presenting his view that mounting evidence leads to the conclusion a recession has begun. Prof. Feldstein blames the housing crisis for growing credit-market dysfunction. Financial intermediaries increasingly don’t trust one another, crimping the lending that could drive the spending of economic recovery.

How to deal with this calamity?

Prof. Alan Blinder, writing in the February 24 New York Times (, harked back to the New Deal’s Home Owners’ Loan Corporation as a template for an institution that could refinance troubled mortgage-loans and stave off massive foreclosure. That would revive the residential real-estate sector and hasten the resurgence of new building and the economy. It would also help resolve the credit-market gridlock that concerns Prof. Feldstein.

But on February 23 ( and 26 ( respectively, The New York Times published articles with these ominous headlines: “A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered” and “Foreclosure Aid Rising Locally, as Is Dissent.” The Point: It will be difficult to generate broad, deep and sufficient relief for homeowners facing foreclosure as long as many believe that the borrowers brought their difficulties down upon themselves.

And, if we can’t fix the mortgage market, how can we repair the credit market and resuscitate the economy?

(The charts are taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2008 Michael B. Lehmann