ANDREW WRITES: After all our discussion about money and finances from a kingdom perspective in recent years, I hope nobody on this List is getting caught out by the current housing slump. I recently heard of some Christians who had made the mistake of taking out & spending all the equity from their home and now it is worth less than what they owe on it. Things are so bad for them that they may be about to lose everything. How many more are in this predicament? -And this is just the tip of the iceberg. Most of us know that the recent boom in America was built on people taking the equity out of their homes and spending it on new cars, boats, holidays, etc. This is one of the most foolish things that U.S banks have ever allowed to happen. Now the housing crunch is on, and things may be about to get a lot worse in this country. Only time will tell, but the article below by a respected economics Professor raises some alarming probabilities. Many newspapers are also publishing articles now about this slump. The below article is by respected Professor Nouriel Roubini who is a Professor of Economics at the Stern School of Business at New York University: "The BIGGEST SLUMP in US HOUSING in the LAST 40 YEARS - OR 53 YEARS?" -Extracts by Nouriel Roubini, Aug 23, 2006. The Biggest Slump in US Housing in the Last 40 Years: These are not my views but those of the Toll Brothers, the famous luxury McMansions homebuilders, as CNN reported last week. Also, as reported by the WSJ today: In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. "I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy," he says. "This time, you've got low unemployment, you've got job creation, you've got a stable stock market and relatively low interest rates.". This followed last week's CNN headline: "Builder: Oversupply slump worst in 40 years. Toll Brothers slashes outlook on new homes as orders plunge and revenue misses forecasts" Indeed, yesterday's sharply falling profit results from the Toll Brothers confirmed their view that this is the worst housing slump in decades. Similarly, Angelo Mozilo, the CEO of Countrywide -- the country's largest independent home mortgage lender - recently stated: "I've never seen a soft-landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen." So, effectively the only debate now is whether housing conditions are the worst in the last 40 years or in the last 53 years. So much for the bullish soft-landing wishful thinking coming out of Wall Street these days... Of course, the message from the Toll Brothers and Countrywide is like the proverbial canary in the mine that is reflective of an ongoing rout -- calling it slowdown or slump is a misnomer by now -- in the US housing market. Every possible indicator of the housing sector that has been coming out in the last few weeks -- and I will discuss their details below - suggests that the housing market is in free fall. And today's figures on existing home sales and unsold homes say it all; as Bloomberg concisely headlined this morning: U.S. Existing-Home Sales Tumble; Unsold Inventory Is Highest in a Decade. I have also argued before that the effects of housing on US economic growth and the role of housing in tipping the US economy into a recession in early 2007 are more significant than the role that the tech sector bust in 2000 played in tipping the economy into a recession in 2001. [Some] reasons: 1. The wealth effect of the tech bust was limited to the elite of folks who had stocks in the NASDAQ. The wealth effect of now falling housing prices -- yes median prices are starting to fall at the national level - affects every home-owning household: the value of residential real estate has also increased to 48.5% of household wealth in 2006 from from 38.7% in 1996. Note that this year there will be large increases in the borrowing costs for $1 trillion of ARM's... Thus, debt servicing costs for millions of homeowners will sharply increase this year and next. 2. The employment effects of housing are serious; up to 30% of the employment growth in the last three years was due directly and indirectly to housing. The direct effects are jobs lost in construction, building materials, real estate brokers and sales agents, and employees of the mortgage finance industry. The indirect effects imply that the role of housing is even larger than 30%. The housing boom led to a boom in consumer durables spending on home appliances and furniture. Indeed, in Q2 real consumption of such goods was already negative: as you have less new homes built and purchased and less old homes refurbished and expanded, you get less purchases of home appliances and furniture. There are also other indirect effects of the housing bust on employment, even on the purchases of motor vehicles. Indeed, the current auto sector slump is not unrelated to the housing slump. As the Financial Times put recently, the sharp fall in the sales of Ford's pick-up trucks is related to the housing slump as such trucks are widely purchased by real estate contractors. And indeed in Q2 real consumer durables (that include both cars, home appliances and furniture all related to housing) already fell, consistent with the view that we have now have a glut in the stock of consumer durables (durables consumption has a investment-like nature to it as such goods last for a long time). Thus, as housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy. How bad are the signals coming from the housing sector? As a recent news headline clearly put it: it is simply UGLY. Indeed, all the indicators from the housing sectors - including the latest housing starts and the homebuilders (NAHB) forward looking business conditions - indicate a housing sector that is literally in free fall. New home sales started to fall since the beginning of 2006 and in some regions they are down over 30% relative to a year ago. As Bloomberg summarized today the new housing data: "Sales of previously owned homes in the U.S. fell more than expected in July, resulting in the biggest supply of unsold homes in more than a decade, as higher mortgage rates discouraged would-be home buyers... Sales fell 11.2 percent compared with a year earlier." The value of home builders' shares on the NYSE has fallen by almost 50% relative to a year ago. The evidence on falling home prices is now becoming clearer. Since the end of World War II, there has never been a year on year fall in housing prices. There have been instead several quarters in which housing prices declined... The fact that the latest housing bubble was concentrated on the two coasts (North East all the way to Florida; and West Coast, especially California) does not mean that the coming housing bust in these regions will not have national macro effects. For one thing, the value of the housing stock in those two regions is close to 50% of the total housing stock given the bubble of recent years. Thus, a housing bust in the two coasts can and will have macro effects. Not only housing prices are falling in the bubbly two coast; they are also starting to fall in the Mid-West, the region where the conventional wisdom was that there was no housing bubble. The fact that home prices are falling in the Mid-West where prices did not skyrocket in the bubble years is a scary signal of how much the housing bust and glut in supply will lead to a sharp fall in housing prices in the quarters ahead with painful effects on the wealth, and thus consumption, of households. You can expect falling median housing prices, on a year-on-year basis, at the national level starting this month of August: indeed, today's figures on the glut of unsold homes - much larger than in the housing bust of the early 1990s - are only consistent with a highly likely actual fall in home prices in the months ahead and throughout most of 2007. Note also that, on an inflation adjusted basis, real home prices (relative to the CPI index) are already falling at a 4% plus rate.... You can expect falling housing prices throughout most of 2007. So, the simple conclusion from the analysis above is that this is indeed the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices. By itself this slump is enough to trigger a US recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession. And on top of the housing bust, US consumers are facing oil above $70, the delayed effects of rising Fed Fund and long term rates, falling real wages, negative savings, high debt ratios and higher and higher debt servicing ratios. This is the tipping point for the US consumer and the effects will be ugly. Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession. And the housing bust is not going to be only a US phenomenon. As I will discuss in another blog, housing bubbles festered in many other economies including many European ones. Thus, the combination of high oil prices, delayed effects of rising interest rates and slump of housing that is now leading to a US recession is a phenomenon that is common to many other economies, including several European ones. So, expect the same deadly combinations of three ugly bears (slumping housing, high oil prices and rising interest rates) to hammer Goldilocks and sharply hurt Europe and other economies in the world. [LATER...] This morning's data on new homes sales, inventories of new homes and prices of new homes fully confirm and reinforce my analysis.. that this will be the worst housing bust - calling it slump is too mild - in decades. And since median home prices may actually fall on a year-on-year basis in 2007 - something that has not happened since the Great Depression of the 1930s - this may end up being the biggest housing bust in the last 75 years... ~Professor Nouriel Roubini. [READ FULL ARTICLE: http://www.rgemonitor.com/blog/roubini ] (Thanks to John Mauldin of 'investorsinsight.com' for originally sending this out).