Magazine article American Banker

Experts: A 'Correction' Unlikely to Plunge Sales into Steep Dive

Magazine article American Banker

Experts: A 'Correction' Unlikely to Plunge Sales into Steep Dive

Article excerpt

Consumer spending, including the purchase of homes, has been buoyed by the bull stock market all year.

As their brokerage accounts bulged (and mortgage rates dropped), more and more Americans have traded up to larger, fancier homes. This is expected to be the third year in a row that sales of existing homes set a record.

The National Association of Realtors estimates that home resales will exceed 4.5 million single-family units this year. And home builders are expected to start construction on about 1.5 million units.

All this occurs against the backdrop of concerns that aging baby boomers will move less often and thus set off a protracted slump in housing demand.

But would a stock market correction, which many believe is under way, finally put a brake on the runaway housing market? Three economists fielded that question for American Banker last week.

Sung Won Sohn, chief economist, Norwest Corp.

Money will flow to the bond market, rates will go down, and that will be a positive (for housing). But interest rates have been quite low, and I don't expect this to be a big positive.

I am more concerned with the negatives. Our calculations show that about 25% of consumer spending is related to the wealth generated by the stock market.

Household net worth has grown from $4 trillion in 1990 to $13 trillion today, and that has supported the housing market. If we were to have a correction, this will stop many housing (purchases), especially among upper-income buyers.

I do expect some slowdown, but slowdown from a very high plateau. …

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