More evidence of the housing sector's ability to affect the broader U.S. economy surfaced last week when domestic automakers reported 2007 sales of only 1.6 million cars and light trucks, a 2.5 percent drop compared with total domestic vehicle sales in 2006 and the lowest level since 1998. Auto industry executives and economists said the outlook for 2008 was equally bleak.
Competition from foreign carmakers and gasoline at $3 per gallon are obvious causes, yet the housing market downturn has hurt as well, according to news reports. Homeowners can't tap equity as easily to purchase vehicles, higher mortgage payments can cut into cash available for other durables, and credit problems can make financing a new vehicle more difficult or costly. Moreover, Realtors are a major market for leased cars, which turn over every few years, and home builders are a major market for light trucks.
The effect of housing's woes on car sales is yet another indication that housing isn't an isolated island with the U.S. economy.