U.S. New Home Sales UP

Unbelievable as it may seem, with rising mortgage costs and falling prices in home-related stocks, new home sales actually set a new record in October! (Just when it seemed that all the 'experts' were starting to line up in a row...)

It could be that people bought those new homes before mortgage rates could rise any further. It's interesting to note however, that home "resales" fell a larger than expected amount in the same month. So, while I was watching real estate ads drop in my area, it would seem that the business was going to the new home builders!

Housing does contribute substantially to the US economy. It contributes not only through construction but also when consumers of new homes buy the new appliances and furniture that usually accompanies their home purchase.

What we do need to be aware of is the fact that we are still "extracting" capital from our homes through refinancing, and that can be dangerous when prices do start to fall. After all, refinancing other purchases through our homes is one-time money, and we will need to pay it back in the form of paying off our mortgage. As a result, the decline in sales and the slowdown in prices -- which is still being predicted by economists for next year -- could seriously weigh on our economy as all the easily available sources of money to the consumer "dry up".

I hate to be a "kill-joy" in the midst of abundance, but like the story of the ant and the grasshopper -- we need to ensure that we have resources put away for the "winter" of an economic downturn. After all, economies still go up and down, and we still have to be prepared for poorer times.

Michael

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