Unabated Foreclosures Causing Consumers to Control Purchases
Maybe they have learned their lessons or maybe they are just afraid that the current economic crisis will not be resolved in the near future. But whatever their reasons are, the dropped in home market prices failed to entice American consumers to buy foreclosed homes.
The U.S. Department of Commerce’s October consumer spending data showed a 1 percent decline, the largest dropped since September 11, 2001. Consumer spending declined 0.5 percent after inflation, reflecting the drastic decline in gas prices.
IHS Global Insight economist Brian Bethune said that majority of American consumers find it hard to qualify for a financing for a student loan or a car. He noted that most lenders would only finance as much as 50 percent or they would require bigger down payments.
National Association of Realtors economist Jed Smith said that strict credit regulations have hindered buyers from acquiring foreclosed homes even if they are offered at discount prices.
Standard and Poor’s/Case-Shiller data showed that home sales in October dropped 3.1 percent despite the decline in property prices. For the third quarter of 2008, home prices declined by 16.6 percent against the same period in 2007.
Smith pointed out that foreclosures were major contributing factors that pushed down home prices. Analysts are expecting that additional foreclosures will create a glut in the housing market.
Mortgage Bankers Association economist Orawin Velz explained that home prices will continue to decline because of the unstable market and foreclosures.
Peter Morici, another economist from the University of Maryland, said that consumers prefer to hold on to whatever savings they have rather than spend on buying foreclosed properties, automobiles, home improvement and entertainment.
The release of consumer spending data has brought positive performance on the stock market.
The Dow Jones Industrial closed with a 2.9 percent average index to 8.727.
Furthermore, Standard and Poor’s average index rise by 3.5 percent while Nasdaq closed higher with 4.6 percent.
By Cassiano Travareli