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Home Sales Lead in to Recession?

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New Home Sales Drop in January

In another sign that the housing boom is slowing, sales of new homes in the U.S. dropped 5 percent in January to a seasonally adjusted annual rate of 1.23 million - the lowest rate in a year, the Commerce Department reports.

Economists had expected home sales to remain level at about 1.27 million in January, according to a survey by MarketWatch.

The number of new homes on the market rose 2.5 percent last month to a record 528,000, equal to more than a five-month supply at the January sales pace. [Editor's Note: Sir John Templeton has warned the U.S. faces a housing crash. ]

Meanwhile the median sales price rose 6.7 percent year-over-year to $238,100, which is precisely the median price for all of last year.

"The growth in inventories and the slower pace of sales and price appreciation are factors suggesting the booming housing market of the past four years is losing steam as mortgage rates rise and affordability falls," MarketWatch reports.

The slump in home sales may be another indication a recession in the works.

For all of 2005, sales of new homes increased to a record 1.28 million.

But January sales fell in three of the four U.S. regions, plummeting 14.9 percent in the Northeast, 10.8 percent in the Midwest and 10.3 percent in the South. Only the West showed an increase, with new home sales up 11.3 percent.

Ominous Warning

Recently, the Economist magazine offered an ominous warning for the U.S economy.

"Danger Time for America" - the respected global weekly magazine stated, depicting a cover drawing of Federal Reserve Chairman Alan Greenspan passing a stick of dynamite labeled the "The Economy."

The Economist is not given to alarmist warnings.

But the magazine has argued that the U.S. economy is in for a rocky road beginning this year, and challenges economic optimists' recent sunny predictions regarding the U.S. financial picture.

The Economist report mirrors the analysis that has been offered by the Financial Intelligence Report, a publication of NewsMax and MoneyNews. The FIR has been warning investors for some time of the potential economic chaos that recently retired Federal Reserve Chairman Greenspan may wreak on the U.S. economy. For more info Go Here Now.

The Economist reported: "The economy that Alan Greenspan is about to hand over is in a much less healthy state than is popularly assumed."

While respectfully bowing to the retiring Fed chairman, with a sly wink to "Greenspan's 'exuberant' send-off," The Economist's outlook soon turns dour, both on Greenspan and on the U.S. economy.

"During much of his 181/2 years in office America enjoyed rapid growth with low inflation, and he successfully steered the economy around a series of financial hazards," says the article.

"In his final days of glory, it may therefore seem churlish to question his record. However, Mr. Greenspan's departure could well mark a high point for America's economy, with a period of sluggish growth ahead.

This is not so much because he is leaving, but because of what he is leaving behind: the biggest economic imbalances in American history."

While the magazine acknowledges that Greenspan "can't control huge economic uncertainties" and "is constrained by limits of what monetary policy can do," it points out that one cannot exaggerate Greenspan's influence over the economy and financial markets.

It has been in the setting of monetary policy that Greenspan falls particularly short, The Economist concludes.

"The main reason why America's growth has remained strong in recent years has been a massive monetary stimulus," it says. "The Fed held real interest rates negative for several years, and even today real rates remain low."

The magazine noted that Greenspan triggered two of the greatest bubbles in history, the dotcom bubble of the 1990s and the real estate one the magazine warns is about to pop.

Says The Economist: "Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future."

For the present, that means slower growth, weaker job creation and low wage growth.

"When house-price rises flatten off, and therefore the room for further equity withdrawal dries up, consumer spending will stumble," the Economist asserted.

"Given that consumer spending and residential construction have accounted for 90 percent of GDP growth in recent years, it is hard to see how this can occur without a sharp slowdown in the economy."

Financial Intelligence Report has been warning investors for some time of the potential economic chaos that Greenspan's legacy will wreak upon the U.S. economy.

Moneynews.com & NewsMax.com
 

Econ101

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Sounds like the arguments agman and I were having. Increase in value of assets is not an increase in real income. It can be a bubble that can burst. To have your future payments based on an increase in assets instead of real income increases is extremely short sighted.
 

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