I think it’s safe to say that we have reached yet another turning point in the housing decline and its effect on the economy as a whole.
Even with the tremendous mortgage-credit turmoil and the emergency Fed actions seen in August, traditional consensus held firmly to the notion of “containment”, unwilling to accept that the housing bust would impact the consumer to an extent that might prove recessionary.
But as we can now see in the latest sentiment surveys, consumers are very clearly acknowledging pain specifically from declining housing wealth and more importantly, expecting more in the future.
This represents the continuation of what has been a consistent downshift in confidence that after having, in many ways, reached a crescendo during the summer of 2004, declined precipitously ever since.
This is a key point as it highlights the importance that people’s perception, sentiment and psychology has on a market and an economy.
Remember that during the summer of 2004, although there were some warnings from bearish economists and even some early bloggers, there was barley any real concern about the stability of the housing and mortgage markets on the part of the average consumer.
In the summer of 2004 interest rates were low, credit availability was tremendously high, jobs were strong, and sentiment and confidence were continuing to rise.
Then… something changed.
The nation’s housing market reached a peak in construction spending and the pace of home price appreciation on a year-over-year basis.
Not long after that, approximately one more selling season, existing home sales followed suit with the beginnings of a simultaneous surge in new and existing home inventories.
As we now know, this was the principle turning point in the housing mania and it was NOT brought about by a weakening economy and job market but instead likely a collective psychological shift.
The mania broke and now we are well into the aftermath.
Today we are just seeing the early signs of a substantive spillover of the housing decline and its resultant turmoil onto the consumer.
With many retailers currently reporting a pullback on spending, especially for discretionary goods, and expectations for the weakest holiday season in the last five years, we may now be at a significant turning point for the consumer.
