Bad news from the housing market
Today's Financial News - Posted November 18, 2009
The news out of the housing market is bad. As the construction industry contracts, the country is in for even more economic pain. It is not over yet, folks.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): If you have been paying attention, today’s news should not be a surprise. With unemployment at 10.2% and weak reports from Lowes (NYSE:LOW) and Home Depot (NYSE:HD), it is no surprise housing starts are way down these days.
If Americans cannot afford to buy a new tub or a couple dozen two-by-fours from a big-box hardware retailer, they certainly can’t afford to call Joe the Builder to erect a new McMansion.
The news is not good for the construction industry as it prepares to go into its annual hibernation throughout most of the country. According to the Commerce Department, October’s housing starts dropped by 10.6% to reach an annualized pace of 529,000.
The so-called experts predicted a figure of 600,000 new starts.
Double-digit miss
Like I said, if you’ve been paying attention, the news should be no surprise.
Over the past week, both Lowes and Home Depot disappointed investors with reduced revenues and profits. But more importantly, with unemployment likely to continue its upward trend, there is no catalyst in site to reignite the building industry.
Combine 10.2% unemployment with the vast amount of workers fortunate enough to remain on the roster but have taken furloughs and strong pay cuts, and well over 20% of the nation is in no shape to build a new home.
The other 80% appear to be content right where they’re at.
The “trickle down” effect this sort of news will have on the nation’s economy will be strong. It is no surprise the markets are selling off today.
As winter approaches, construction companies will lay off employees. Suppliers will be forced to follow suit. Without cash in their accounts, these workers will shop less, drive less and eat out less.
The pain will spread far and wide.
Remember, this economy was built on the back of a booming housing market. Now that we broke the spine, the body will collapse.
What does this mean for you, as an investor?
It means you need to be cautious as we move forward. This talk of a “V-shaped” economy is nonsense. We can’t go back to our old spending habits with millions fewer jobs and an empty home-equity ATM.
The market may have climbed over the past few months, but there were many underlying reasons for the surge. Much of it was technically based. Very little of the move was due to an increasingly strong consumer market.
We are not entering another devastating depression, but this economic recovery is far from over. There is plenty of pain ahead.
Just look at the numbers.
Next Article: HSC double-digit gainer #70: 32% on Silvercorp. (SVM)
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