from the hip

A new study from Harvard University lends considerable support to what I have previously written here about the crisis in the US housing market. The study predicts that

housing woes will continue as the economy wavers from the sharp drop in home building, credit and stock market turmoil, and a slowdown in consumer spending.

The study also adresses the negative wealth effects of the current situation in the housing market:

“Further price declines will not only increase the probability that mortgage defaults end in foreclosure, but also put a tighter squeeze on consumer spending,” the report stated.

As well, the report states that if the economy plunges into a severe recession, housing demand could fall even further. Many factors seem to still point in this direction. There are a number of negative indicators:

American Express experiences late card payments increasing

House prices dropping

Consumer confidence still dropping

The oil price is still rising

And so on and so forth. At the same time, inflation is on the rise, and while the Fed now is expressing strong concerns about this, they have still not really adressed it. My sense is that they will soon have to.