Paul Krugman at the N.Y. Times:
Now what? Until recently most business economists were predicting a “soft landing” for housing. Even now, the majority opinion seems to be that we’re looking at a cooling market, not a bust. But this complacency looks increasingly like denial, as hard data ? which tend, for technical reasons, to lag what’s actually going on in the market ? start to confirm anecdotal evidence that it is, indeed, a bust.
Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn’t really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.
... [H]ousing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.
Fresh evidence shows that high energy prices and sagging home values are pinching the main driver of the U.S. economy: the Average Joe’s wallet.
Retailers and economists say many Americans are waiting to buy big-ticket items and cutting back on frills. Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets.
“People are taking funds from one area and committing them to another, gasoline and utilities in particular,” Gregory Miller, chief economist at Sun Trust Bank Inc., said.
The downturn in America’s housing market is already having a negative effect on consumer confidence levels.