Soft patch? Three reasons economic growth is slowing.

3. Housing's continued fall

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    A foreclosed property is offered for sale May 31, 2011, in Los Angeles. Home prices are falling, and arelikely to continue to fall, as a glut of homes come up for sale in the next few years.
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In April, the rate of new housing starts plummeted by more than 10 percent for a seasonally-adjusted annual rate of just 523,000 new homes. This is far below the 1.2 million new starts typical for a healthy housing sector.

The picture gets worse as the so-called housing “shadow market” emerges from, well, the shadows. An estimated 4 million homes will soon be listed for sale once banks finally process the backlog of repossessed properties. Such rampant oversupply will have the very predictable effect of further lowering demand for new homes while simultaneously driving overall home prices downward.

With all this in mind – increasing unemployment, weak consumer spending, and a housing sector in shambles – it is clear the economy is facing more than just a “soft” patch. A recessionary “double dip” may yet prove avoidable, but the world’s largest economy is likely to continue to struggle with high unemployment and slow growth well into next year.

Scott Boyd is a currency analyst with OANDA, a Forex trading company with offices in New York, Toronto, Singapore, and Dubai, and contributes to the company’s MarketPulse FX blog.

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