Will the Latest Information About the Housing Market Affect Consumer Spending This Christmas?

According to the latest news, including that at Bloomberg.com (www.bloomberg.com/apps/news ),
there are indications that home prices seem to have dropped to there lowest point of the last six years and ripples are starting to spread into the general economy, affecting sales at Target and other major retail stores. This doesn't bode well for the 2007 Christmas and holiday season.

Factors affecting the housing market include:

1.Lower home prices in many areas

2. Higher payments for a significant number of homeowners with adjustable -rate mortages

3. Increased delinquenceis for many with prime mortages, rising since June a year ago (Bloomberg, see source info below).

4. Sharply rising fuel costs

5. As home prices fall, consumers have less equity to borrow against.

Home values in 20 U.S. metropolitan areas slid 4.4 percent in the 12 months that ended in August, according to the S&P/Case-Shiller home-price index.
Does this mean that consumers will put a brake on holiday spending this year (as their confidence is lower as well, according to the latest reports)? The latest news could trigger a recession or sharply increase the risk of one.

In many areas, stores seemed overstocked with items in my area (midwest) and prices were generally higher for holiday items than last year but sales weren't exactly brisk (yet). The International Council of Shopping Centers and UBS Securities LLC last week reduced their October chain-store sales forecast as merchants dropped prices to attract buyers.Target Corp. last week lowered its October sales forecast and Wal-Mart Stores Inc., the world's largest retailer, cut prices on 15,000 items for the holidays.Specific info on Target appears here,
www.bloomberg.com/apps/news
but the bottom line is that Target's prime customers may be particularly hard-hit: shoppers who are young and own homes.(www.bloomberg.com/apps/news)
Target Corp. last week lowered its October sales forecast and Wal-Mart Stores Inc., the world's largest retailer, cut prices on 15,000 items for the holidays.

As noted above, U.S. consumers are coping with lower home values, and some owners with adjustable-rate mortgages face higher monthly payments. U.S. existing home sales in September fell to an annual rate of 5.04 million, the National Association of Realtors in Chicago said, the fewest since January 1998.(abclocal.go.com/ktrk/story) as indicated by this ABC news report (final paragraph).

The percentage of delinquencies for people with prime mortgages rose to 2.73 in June from 2.29 a year earlier, according to Bloomberg data. Target is feeling the effects as borrowers with higher incomes can't refinance at lower rates, or hold mortgages worth more than their homes' values, according to Guy Cecala, the publisher of Inside Mortgage Finance newsletter.
There are other factors at play when it comes to consumer spending and confidence in both the housing market and the general economy, including rising prices for fuel ( and a decline in property prices.

``Housing is clearly the root of the problem," as noted by Carl Riccadonna, an economist in New York at Deutsche Bank Securities Inc. (Bloomberg report online).

Fed officials and Treasury Secretary Henry Paulson aren't exactly optimistic, believing that the housing slump has further to go. Near-record inventory levels suggest sellers will continue to lower prices, posing a threat to consumer spending because homeowners will have less equity to borrow against.
Fifteen cities showed a year-over-year decline in prices, led by a 10 percent drop in Tampa, Florida, and a 9 percent decline in Detroit. The area showing the biggest gain was Seattle with a 5.7 percent increase.

``The outlook for sales heading into the holiday season looks gloomier than a year ago,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the surge in oil prices likely to soon push up gasoline and home-heating oil prices, more consumers are likely to be forced to curb their holiday shopping.''" There are indications that home prices may have have dropped to there lowest point of the last six years.

Home values in 20 U.S. metropolitan areas slid 4.4 percent in the 12 months that ended in August, according to the S&P/Case-Shiller home-price index.

The Bottom Line for Holiday and Christmas shopping:

Will consumers will put a brake on holiday spending this year , if their consumer confidence is indeed lower this year then ever, as indicated by the latest reports? Does the latest news indicate a recession is looming? Target Corp. last week lowered its October sales forecast and Wal-Mart Stores Inc., the world's largest retailer, cut prices on 15,000 items for the holidays. Questions remain about how much consumers can afford to spend in the wake of lowered home prices, rising fuel costs, lower equity and other factors hit their wallets, purses and, inevitably, their income and bank accounts.