Jumping to Conclusions

I was skimming the headlines this morning when I noticed one in the breaking news section of a couple of news sites which indicated that new housing construction fell to new lows this past month. Given the history of mass panic and effects on the markets by so much as a mouse passing gas it wouldn't surprise me in the least if this announcement sets off another chain of ripples through the market. But honestly, is it that big a surprise that housing construction is starting to drop off? I mean given that we're just coming off of a few years of record home constructions fueled by banks giving loans to people who couldn't afford a car yet could 'qualify' for home loans for multi-million dollar homes is it any wonder that new construction is finally catching up with the market and slowing down?

It seems that about a decade ago we couldn't build houses fast enough over here. Everywhere you looked new neighborhoods were popping up and new communities were blossoming. Areas of the state in which we lived where previously deer and the antelope played was suddenly replaced by tract housing, townhomes, condos and apartments. I remember seeing so many old apartment houses being bought up and sold off as condos to the latest crop of people wanting to own homes. Is it any wonder then that builders jumped on the bandwagon and decided to build what was in demand? Simple economic theory teaches us that when demand is high, people are willing to pay high cost if the supply is low. But eventually the two intersect at which time you have an equilibrium. But if demand falls below supply then you have excess supply which will sit until sold.

That is more or less where we're sitting now. Given that the market is still in the process of recovering from the shambles it has been in the past so many months and that people are uncertain whether the bank or lender they go to today will even be in existance tomorrow means that people will be unwilling or at the very least, less willing to plunk down money and buy a home. Certainly not a home that is well beyond their means. A few years ago the trend had become to show wealth and prosperity of the nation by declaring homeownership as the benchmark to the prosperity of the nation. The problem was that people took that to mean any home; even ones you couldn't afford. Sure if everyone was willing to buy a house within their reach things might not have been so bad but with banks coming up with schemes that were really too good to be true and people willing to spend more than they had to get that home of their dreams, it was a hosue of cards ready for collapse.

Now the market is a mess, banks are no longer a sure bet and houses are sitting empty. I'm sure people will begin investing in homes again in the near future but it isn't going to be like the boom of a few years ago. Why should it be? People are still worried about what's going to happen tomorrow so why will the majority invest in a home and think that far ahead? Why buy a home if tomorrow it means that I won't have a job to help pay for it? Why buy a home if my lender is going to raise interest rates so high that I'll never be able to pay back my mortgage? Why why why? So many uncertainties and so much fear that one wonders whether people will realize that this is just a period of market correction. Things are going to improve again and it doesn't really matter who is running the government; we the people haev the power to affect how soon or how long the problem persists.