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Money for Breakfast Fox Business NetworkNovember 20, 2007 9:00 AM - 10:00 AM PETER BARNES, anchor: Just about a half an hour ago new numbers on housing starts and building permits coming out. Home construction unexpectedly rose in October, jumping three percent. That was the first gain in four months. And for some reaction we are re-joined by the president of Americana Mortgage Group in Manhasset, New York, Bob Moulton, and our own Fox business stocks editor Liz McDonald. Liz, you have some interesting insights on home values and consumer spending. LIZ McDONALD (Fox Business Stocks Editor): Yeah, you know, there's always a question out there: the downturn in housing, how will that effect consumer spending? And, interesting studies coming out from economists who found that when you're stock portfolio drops, say, by a hundred bucks, then consumer spending is affected by, say, $3 to $5. But when housing wealth goes down, consumer spending deepens. The loss drops--consumer spending deepens to like $4 to $9 to every $100. In other words, consumers scale back by four to nine bucks versus the drop in your stock portfolio. So that's--you know, that's why, I think, the market has been very volatile lately, because they know that, psychologically, when consumers see their homes go down in value that hits them harder. BARNES: Yeah, and it's a psychological thing, Bob, right? Mr. BOB MOULTON (President, Americana Mortgage Group): Not only that, I mean, the decrease in value--homeowners have been using their houses to supplement their income to go on vacation, to buy plasma TV's... BARNES: ATM machines. Mr. MOULTON: ...to buy durable goods, like an ATM machine. Also, with permits being down, I mean, the housing starts number being up was a pleasant surprise but nothing to get excited about because I think you're going to continue to see a downtrend. But that's a leading economic indicator in our industry because that's also going to trigger off durable goods, appliances, furniture, construction jobs, and things like that that are related to the housing industry. And with those numbers going down people aren't going to be needing to buy the refrigerator and the dishwasher, and everything else that goes along with buying a new house. BARNES: Bob, are you worried about a recession at all, here? Mr. MOULTON: Well, that's always the word that we're trying to hopefully avoid. BARNES: Want to avoid. Mr. MOULTON: Yeah, exactly. But, you know, jobs are still great, employment's very, very strong, interest rates are still very attractive. Interest rates are at six percent. The lowest that we saw interest rates were at five percent back in July of '03. You still have firm prices, too. Places like Manhattan, the bedroom communities of Manhattan, Chicago. What's really bringing down these numbers, and we're always addressing them on a national level, is California, Nevada, Michigan, Florida. Back those out I don't think we're in that bad of shape. McDONALD: Yeah, and Manhattan, for example, you still see sales coming in strong. But, you know, the home equity lines of credit is an issue. I--you know, some studies have found that consumers use them to pay down their very high credit card debt. Maybe that puts the consumer in a better position than they realize. But again--that, that, yeah--but again, the number you really want to watch is existing home sales because they make up the majority of housing sales, and they have been coming in pretty weak. BARNES: Bob, as a mortgage broker, would you like to see the Fed cut again in December? Mr. MOULTON: Well, the Fed cut twice already, and the prime's at seven and a half percent, because it follows the Fed funds rate. There's some great home equity deals out there; prime minus a half, prime minus three-quarters. However, they're not really providing stated income home equity lines of credit. So, yes, I'd like to see the Fed cut again. December 11 is their next Fed funds meeting. And if they do that that would be a nice Christmas present for everybody. BARNES: All right, chairman Ben Bernanke, 501 Constitution Avenue, Washington, D.C. You can drop him a note. All right. MOULTON: Thank you. BARNES: Yeah, or a Christmas card. Maybe he'll give you a Christmas present. All right, thank you Bob and Liz.
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