A Housing Slump? But All I See Is New Construction …

You’re not imagining things: Those really are cranes down the street, and you really did see a sign posted for a new development two blocks over. But if business is still booming as far as building is concerned, why all the media panic over the decline of the housing market? Because the decline doesn’t just…

You’re not imagining things: Those really are cranes down the street, and you really did see a sign posted for a new development two blocks over.

But if business is still booming as far as building is concerned, why all the media panic over the decline of the housing market?

Because the decline doesn’t just stop at — or with — your front door. And like it or not, the market is declining: In a July 18, 2007 article on the housing market, Bloomberg News points out that the properties are still being built — not, perhaps, in the fervor they were a year ago — but despite incentives and lowered prices from builders, rising mortgage rates and stricter lending rules are reducing residential property purchases.

Which, in turn, is creating an excess of properties on the market, a nationwide real estate slump and a ripple effect within other industries.

Federal Reserve Chairman Ben S.
Bernanke’s Congressional address this week indicated that the decline in
residential building will continue to inhibit economic growth for some time. Since its start, the housing slump is belived to have caused challenges for the following companies:

  • Home Depot. The retailer reduced its annual profit expectations. Experts predict revenue may fall 2 percent this year, which would be the first annual decrease in the home improvement retailer’s history.
  • Banks. Some financial institutions are also feeling the sting. The Michigan Business Review reported Wednesday that early reports for the second quarter indicate the reduced housing market is cutting into bank earnings, due in part to lower loan growth and higher loan losses.
  • Sears. Stock for the biggest U.S. department store chain saw its biggest drop in four years after the company announced in early July its second quarter profit may decline by as much as 46 percent.
  • Sherwin-Williams. The Cleveland-based paint company’s shares decreased
    $1.28, or 2 percent, Forbes reported this week.
  • GBO Inc. The window manufacturer, formerly known as Groupe Bocenor, announced at a recent shareholder’s meeting that, due to difficult market conditions, first quarter sales declined by 22 percent from last year.

How many others will be affected by an excess of homes on the market? Most likely many more, until the housing trend starts to turn around. Some are grimacing and predicting another six months of slow home sales; others are more optimistic.

Until then, we wait, and watch. And hopefully, those cranes down the street keep moving.