Anymore, one grows reluctant to say much about U.S. housing markets. The news just keeps getting "bad and badder." But this will not last forever and the situation should be monitored. Circumstances are being set in motion that will be self-correcting. For example, home buying affordability is already much improved. The drop in the federal funds rate to almost zero percent has reduced mortgage rates and house prices have now declined by nearly 20% on average across the nation.

Washington's Measures to Help Housing
The new administration in Washington is planning $75 billion in mortgage relief to avoid a next wave of foreclosures. The only question is the degree to which this will take the form of homeowners' payment cuts and/or principal reductions. Government money will go to the affected banks in the form of compensating subsidies. The hope is that housing markets − sales, prices and starts − will be stabilized by the fall.

The inventory of unsold new homes extends out over a year. The number of unsold new homes has dropped to a level last seen in 2003 and earlier. The problem is that the monthly sales rate keeps plunging. The decline in new home starts has been almost 80% from peak (2.273 million units in January 2006) to present (466,000 units in January 2009), according to the Census Bureau and the Department of Housing and Urban Development.

Impacts on the Economy at Large
Just as serious are the impacts that weak housing markets are having on the economy at large. These are showing up in a number of important ways. For example, the "preliminary" national accounts data has just been released for the fourth quarter of 2008 by the Bureau of Economic Analysis. The residential investment component of Gross Domestic Product (GDP) has declined on a quarter-to-quarter annualized basis for 12 straight periods, stretching back to the beginning of 2006.

The -22.2% figure for residential investment in the latest quarter was the third steepest in the past three years. This has been a serious drag on GDP. It has also impaired goods production and retail sales. Current retail sales are -10.0% on a year-over-year basis. While some of this is due to a sharp decline in durable goods orders, including autos, a large portion also results from less spending on the appliances, furnishings, electronic products and "bric à brac" that go into a new or existing home.