More Than...Less Than...

I'm going to give you a two for one in this post. The first is from yesterday, second is from today, but I they are definitely intertwined.

"Purchases [of new homes] dropped 3.9% to an annual pace of 848,000 last month. Economists had forecast they would rise to 985,000."

"Consumer confidence in U.S. drops more than forecast as fuel prices climb."

First off, some of the drop in consumer confidence might be partially attributed to high prices at the pump, but most likely, they are attributed to the recent volatility in the market and even more on declining home prices.

The supply of unsold home rose to a 16 year high. This supply, along with tightening credit standards, continues to push prices of homes down. One thing that you can always hear the talking heads on CNBC talking about is the amount of money lost in the market correction. I don't have the exact numbers but they say $100 billion dollars lost in equity markets.

What about the amount of money and liquidity that's being taken away in declining housing prices? It's rather important to note that a lot more people own homes than own stocks. Homes are often the only investment of some consumers. These declining home prices are leaving the consumer pinched because they can no longer take equity out on their homes.

Last year the savings rate in the United States was -1%. People spent more money than they made. Even Bernanke said the economy can ride consumer spending to moderate growth. So much of that consumer spending, which accounts for 70% of GDP, is due to their ability to take out equity on their homes. Those days are coming to a home, and expect the number of folks with negative liquidity to rise.