By Jesse Herman, contributing editor
Housing Stocks plunged 243 points Tuesday, due to concerns over subprime lenders. Consequently, retail sales are also slowing.
The Mortgage Bankers Association pumped fear into investors after they said foreclosures have reached an all-time high in the last quarter of 2006. Additionally, late mortgage payments soared to a 3 ½ year high. This helps solidify the growing consensus among investors that problems are widespread, sending them running for the hills.
From 2000-2005 the housing market soared, becoming a major source of revenue for consumers. The recent issues with subprime lenders, who provide mortgages to those with poor credit, have raised questions within the housing market as a whole. While subprime markets account for only a small percentage of the U.S. Economy there is reasonable concerns of a bleed over.
Consumers account for about 70 percent of the economies growth. It will be interesting to monitor consumer spending in the coming months during the continued downfall of the housing market. Particularly considering increased consumer spending was a direct result of the housing market.
The numbers paint an ill-fated picture when considering all three major stock indexes were down 2 percent. Japanese stocks followed suit and U.S. retailers reported a miniscule 0.1 percent rise in sales last month, below the 0.3 projections. Some argue, though, that retail market was hit especially hard last month due to bad weather.
Wall Street is now forced to debate whether American buying power can hold up an economic downslide.
In February, former Federal Reserve Chairman Allen Greenspan warned about a recession, citing stabilized profit margins. Inevitably, paranoia is now rampant.
Subprime mortgage concerns have been growing recently and now that the Securities and Exchange Commission is probing into New Century accounting errors that inflated its portfolio, these worries have accelerated.
Chief Investment Officer for Harris Private Bank, Jack Ablin, said, “It looks like the notion was subprime was contained and now we’re starting to see that maybe this problem has moved into other areas of the market. That’s causing investors great concern.”
