Tuesday, January 17, 2006

'Beginning To See Some Leaks'

Tracy Mullin, president of the National Retail Federation, says that "While we don't expect the housing bubble to burst, we are beginning to see some leaks.'' Seems other markets are starting to realize that more than just the construction trades would be hurt by a slowdown, or a drop, in the housing market.

This from Knight Ridder reporter Elaine Walker:
Rising energy costs, coupled with a slowdown in the housing boom that has fueled markets across the country, is likely to put a crimp in retail spending in 2006.

That was the outlook presented Monday at the National Retail Federation's annual convention. The normally optimistic group is tempering its forecast this year, calling for a 4.7 percent growth in 2006 retail sales, down from a 6.1 percent gain in 2005.

Real consumer spending, which rose 3.7 percent last year, will increase only 2.8 percent this year.

``While we don't expect the housing bubble to burst, we are beginning to see some leaks,'' said Tracy Mullin, president of the National Retail Federation.

As home prices have skyrocketed around the country, consumers in recent years have been cashing out. They have turned to a combination of home equity loans, mortgage refinancing and capital gains from home sales as a way to fund both home improvements and other spending.

``As interest rates go up, people are going to find it more loathe to take out home equity lines of credit,'' said Rosalind Wells, chief economist for the National Retail Federation. ``Consumers are not going to feel as anxious to tap into their home values.''

Freddie Mac estimates that about $205 billion was extracted from home values in 2005, up from $142 billion in 2004. A study by Federal Reserve economists found that money from home values added about $700 billion to economic activity last year, which translates into as much as 8 percent of total consumer spending.

That's been good news for retailers, particularly building material stores, warehouse clubs and electronics retailers, which reported the best performances last year, including regular double-digit increases.

As the housing market slows, Wells expects building material stores and furniture stores to be the first to see the impact on sales. By comparison, she expects relatively strong performances in the areas of electronics, clothing, accessories, food and beverage, and health and personal care.

``Everyone's increases will look a little more modest, but they will still outperform the average,'' Wells said. ``We're looking at a slowing of consumer spending, nothing dire, not a recession.''
Find the rest of the story at this link.

— The Boy in the Big Housing Bubble