Even if we don't hit a recession, it may feel like one

Monday, November 26, 2007

A story in The Economist certainly has the author mangling his (or her) worry beads, as the combination of declining consumer (and builder) sentiment, tighter loan standards and higher energy prices put upward pressure on the chances for a recession:

"The housing downturn has entered a second, more dangerous, phase: one in which the construction rout deepens, price declines accelerate and the wealth effect of falling prices begins to change consumers' behaviour. The pain will be intensified by a sharp credit crunch, the scale of which is only just becoming clear. And, in the short term, it will be exacerbated by a spike in oil prices—up by 25% since August—that is extreme, even by the standards of recent years. The result is likely to be America's first consumer-led downturn in close to two decades."

That also means that the hope for quick rebound in the housing market in mid- to late 2008 is looking unlikely, although it's possible that we will hit a bottom in terms of sales during that time period. Of course The Economist has been bearish about the U.S. housing market for some time now...