September 16, 2007

Real Estate IS The Economy

The White House and the Federal Reserve have suggested they'll take a hands-off approach to the worsening crisis in mortgage lending unless the situation appears to threaten the broader U.S. economy. The obvious flaw in this thinking is that housing and lending can't be isolated from the broader economy and that's not just in the U.S., but globally as well. Higher mortgage payments force consumers to stop spending. Car showrooms are empty due to lack of home equity appreciation. New-home builders are stuck with standing inventory. Manufacturers of home products must downsize. Remittances to Mexico dry up as construction laborers are thrown out of work. That's not to say that the federal governement or the Fed should act, but rather that there are consequences for inaction as well.