Housing Impact by Sector

While some people inexplicably continue to deny the impact of Housing, the reality-based community is taking the measure of the actual net results of the slowdown.

Slate’s Dan Gross looks at all of the industries now feeling the pain from the housing slump. It is not just companies whose "fortunes are directly tied to housing and to housing credit" like home builders (Toll Brothers, Pulte, Lennar) and rating agencies (Moodys, S&P). Rather, the decrease in economic activity related to the slowing real estate sector cuts across industries and regions, and even nations.

What other sectors are showing quantitative data reflecting the slowdown?

Railroads: CSX reported volume of shipments down 4%. Union Pacific said Q1 carloads fell 2%. Revenue was down 3%.

Recreational Boating: West Marine’s
quarter showed sales were down 4%. Marine Max cut forward guidance and earnings estimates for
2007 by over 60%. Marine Max also happens to Brunswick’s largest customer — and they report tomorrow (4/26).

Latin America: As we noted yesterday, monthly remittances from the U.S.  to the region (Mexico, Latin America) have dropped by some 30% or so.

Automobiles: The Fed spurred a huge run-up in car sales when they dropped rates to 46 year lows. Zero % finance became ubiquitous; that was followed by MEW funded car purchases. GM noted the entire market was "a little weakish." Why? Reduced ability to pull out equity and spend it, not just at GM, "but across the industry."

Luxury Homes: Even within the housing sector, the results have been surprising. Forbes notes that its not just the lower end sub-prime credit/entry homes that are being effected: there is something of a fire sale in the luxury sector as well. "Even wealthier households use ARM products to finance the purchase of luxury homes in expensive areas. The rate resets combined with declining house values are creating a problem even in this sector of the housing market."

Remember, a lot of economics takes place at the margins. Why? (I know this is economics 101 but bear with me).

In most markets, there is a fairly stable equilibrium between supply and demand. That balance — just enough goods to meet the needs of those who want/need to purchase them — maintains price stability. It also allows companies to plan and execute their production and distribution fairly smoothly.

Once either side of the equation moves out of balance, shift happens. If supply builds too high, you end up with too much product. Prices drop until increase in sales (at lower margins) reduces the inventory build. When demand drops due to credit or financing issues, a mere price drop will have little effect. This is why the decrease in Housing activity — Resales, HELOCs, Refis — is  potentially so important.   


Let’s do a little crowdsourcing: I am sure that the many readers of this site can come up with a long list of other companies/sectors/regions that are impacted by the ongoing Housing slump.

Hit the comments — that’s what they are there for!


UPDATE April 25 2006 9:46am

A few stories have hit the tape after this was posted:

Greenspan Says Consumers Fund More Spending With Home Financing
Bloomberg: Former Federal Reserve Chairman Alan Greenspan said the share of consumer spending that Americans funded from extracting cash from the value of their homes doubled in the five years to 2005.

Subprime Bondholders May Lose $75 Billion From Slump
Bond investors who financed the U.S. housing boom are starting to pay the price
for slumping home values and record delinquencies in sub-prime loans. They will lose as much as $75 billion on securities made up of millions of
mortgages to people with poor credit, says Pacific Investment Management Co.,
manager of the world’s biggest bond fund. Some of the $450 billion in sub-prime
mortgage-backed debt sold last year has lost 37 percent, according to Merrill
Lynch & Co.

To repeat the original question, what sectors are slowing in the US relative to Housing



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