Tuesday, July 31, 2007

US stocks tumble, housing and credit worries take the blame

Bizjournal.com: “Housing market hurts consumer confidence in Florida”
FxStreet.com: “US: Private Markets, Risk and the Housing Correction—July 2007”
Bloomberg: “US economy: consumer confidence jumps more than anticipated”
Bloomberg: “American Home Can’t Fund Mortgages, Shares Plummet”

By close of the markets today, US stocks had lost what gains were made earlier. The blame for these losses has been placed with the worrisome cost of credit and problems in the housing market.

Foreclosures on homes are rising, some 58% above rates earlier this year and more than 30% over last year’s rates. In the face of these numbers, and the fall of major mortgage companies—most recently American Home—the once-booming US housing market appears to be a thing of the past. And while consumer confidence in the United States remains high, the housing slump is beginning to undermine even that. Reports coming in from states like Florida and Arizona, both hard-hit by housing market troubles, indicate slowdowns in consumer spending.


Recall that the US housing market was the locus of an unprecedented boom in the late 1990s and early 2000s. Do you think that current housing market troubles are indicative of a natural correction in the market?

Was there something that the US could have done from the standpoint of macroeconomic policy to prevent the crash of its housing market and by extension the inevitable human suffering that results from losing one’s house through foreclosure or repossession?

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