A Canadian economics outfit has released new data that paints a dark picture for the U.S. housing market — and for the overall economy.
Capital Economics, a Toronto-based investment/economic analytical firm, says that a “double dip” is on the menu for the housing market. Report author Paul Dales, as quoted by HousingWire.com, says that we’re on the precipice of a “new downturn.”
"The expiration of the homebuyer tax credit at the end of April has triggered a double-dip in the housing market, with new home sales falling particularly sharply in May," he writes in the report Double Dip Begins. "The only reason why existing home sales did not fall significantly is because they are measured at the contract closing, rather than signing stage."
Dales sees a big upward spike in the number of U.S. home foreclosures, which will set off a domino effect that will result in a “shadow inventory” of unsold homes that totals 7.9 million. "That dwarfs the 3.9m homes already on the market,” Dales writes.
If Dales is correct, a double dip in housing will adversely impact bank savings rates. As more homeowners go under, they’ll have less money to spend. That hurts economic growth, and would likely force the Federal Reserve to keep interest rates low to foster economic growth.
Let’s hope Dales is wrong — but let’s also be prepared for lower bank rates if he’s right.