Housing Starts Why It Wont Be Business As Usual

Housing Starts Why It Wont Be Business As Usual



Some will blame current economic pressure on​ a​ subprime market that was more enthusiastic than realistic. Housing starts are down with consumer confidence following suit. According to​ the​ Conference Board its “March [2007] consumer confidence index fell to​ 107.2,​ the​ lowest level since November and a​ decline that was larger than Wall Street expected.”

The good news is​ the​ Dow has performed well in​ the​ midst of​ this news while labor statistics remain strong.

Federal Reserve Chairman Ben Bernanke's testimony before Congress on​ March 28th,​ 2007 found him concerned about the​ impact of​ defaults on​ subprime loans. Bernanke indicated that,​ “Although the​ turmoil in​ the​ subprime mortgage market has created severe financial problems for many individuals and families,​ the​ implications of​ these developments for the​ housing market as​ a​ whole are less clear. the​ ongoing tightening of​ lending standards,​ although an​ appropriate market response,​ will reduce somewhat the​ effective demand for housing,​ and foreclosed properties will add to​ the​ inventories of​ unsold homes.”

Interestingly,​ news of​ the​ ‘bubble pop’ in​ subprime lending is​ rippling around the​ world. the​ European Union as​ well as​ Australia have been monitoring this leading economic indicator.

Chairman Bernanke indicated subprime loans account for about 10% of​ all mortgages. if​ banks have lost their ability to​ derive a​ profit from these loans it​ may signal a​ slow down in​ this sector of​ lending adding additional pressure to​ housing starts along with the​ potential for loan default. This news adds pressure to​ what had appeared to​ be a​ relatively stable economy.

The impact of​ a​ slow down in​ housing starts may have ramifications for business. Michael Allen is​ the​ CEO and founder of​ Allen Associates Executive Search. Allen said,​ "I receive about four or​ five calls a​ week from CEO's worried about plummeting housing starts. we​ believe that North American building products manufactures have built infrastructures to​ support 2.3 -2.4 million starts. Based on​ the​ probability of​ 1.5 million starts,​ many of​ our clients will need to​ rationalize capacity by closing plants." Allen Associates is​ a​ leading executive search firm specializing in​ CEO search assignments for major building products producers in​ North America.

Certainly there may be regional pockets where housing starts are still strong. However,​ the​ general decline often has a​ negative overall impact on​ the​ economy due to​ the​ fact that housing starts can signal economic growth or,​ in​ this case,​ a​ slowing in​ the​ economy.

Many economic analysts believe America is​ entering a​ period of​ sustainable economic growth. Essentially this means American business is​ likely to​ continue experiencing moderate growth,​ but as​ the​ rapid rate of​ home starts has declined so has the​ overall rate of​ growth.

American business will likely be forced to​ develop and implement new strategies based on​ this revised economic climate. This may include reduced output,​ a​ smaller workforce and the​ further streamlining of​ their operations. if​ the​ analysis from Michael Allen is​ correct we​ could see,​ “…dramatic operational changes by June or​ July.”

The impact of​ a​ declined in​ housing starts does not necessarily indicate economic doom,​ but it​ is​ an​ indicator that the​ economy is​ either struggling of​ self-adjusting. in​ either case American business interests will be forced to​ take corrective action on​ behalf of​ their shareholders.




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