Real Estate Market Deterioration – Spreading the Infection

Merrill Lynch is forecasting home prices will fall by 15% in 2008 and another 10% in 2009, an outlook that will likely continue to fuel high foreclosure rates. 

Several states recorded massive jumps in foreclosure activity in the last twelve months. In Rhode Island filings rose 279%; in Maryland they spiked 430%; and in Virginia they leapt 634%.  

The effects are swelling far beyond those unfortunate soles impacted by losing their homes.  Outside of those things that are obviously related to home sales, such as real estate agents and mortgage brokers or new home construction, thousands of people who rely on ancillary products and services are being affected by the long lasting downswing. 

Home improvement chains have been battered as consumers curbed spending on big-ticket renovations in the face of falling home prices, lower sales and tighter credit conditions.   

Take Home Depot and Lowes for example.  Home Depot plans to open 55 new stores, down from 100 opened the year earlier.  Lowe’s, which also scaled back its 2008 store growth, said profit would fall this year as total sales rise about 3 percent. 

How this affects Middle America: If the average Home Depot store location employs 175 people, this year’s slow down for them will account for over 7,800 jobs that would have otherwise been available in a thriving economy.  Fewer jobs will inevitable lead to higher unemployment, which will no doubt translate to higher than average inflation as the US dollar continues to lose value and the average American’s spending power dwindles lower. 

On the bright side, eighteen states substantially improved since last January.  In Pennsylvania, foreclosure filings fell 55% to just 1,683, one for every 3,226 households. West Virginia recorded a drop of 54% to a miniscule 53, one for every 16,667 households. And Vermont’s total dropped in half, from two to one (sounds like a good place to go for financial advice).