Slow Housing Market Affects Economic Growth

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• RAY SUAREZ:

  Now, the slumping housing market and its impact on the economy. The latest numbers found housing construction dropping more than expected throughout much of the country, and applications for building permits — a sign of future construction — fell to the lowest levels since 1997. The NewsHour's economics correspondent, Paul Solman, has been exploring what the changing fortunes of the housing market may mean for economic growth. Here's his report.

• PAUL SOLMAN, NewsHour Economics Correspondent:

  The economy's good: unemployment, low; stock market, up. The economy's bad: consumer confidence, shaky; auto industry, stalled; and most importantly, perhaps, housing is on the skids.

  Home sales are down some 14 percent from last year. New housing starts, down almost 30 percent, knocking more than a full percentage point off economic growth. And there's great fear these days that the hottest housing markets of recent years, like California and New York, will fall hardest.

  So are we OK or in the early stages of a housing-led crash that might depress us all? We took this debate to one of America's real estate hot spots, New York City, and a trendy neighborhood known as Tribeca, home to a construction boom of dizzying proportions and economic forecaster Nouriel Roubini, a gloom-and-doomster who sees evidence all around him of a real estate bubble about to burst, starting with his own duplex loft, for which he paid $800,000 four years ago. An identical apartment just went for $2 million.

• NOURIEL ROUBINI, New York University:

  Here is my building. There is another one that is just being finished right there. There will be 500 new units. Now, another site right across the street is going to be a 40-story-high residential building. If you look here, in Tribeca alone, I have a map that shows you all the new developments that are coming up in the next year-and-a-half. You see…

• PAUL SOLMAN:

  This is the black?

• NOURIEL ROUBINI:

  Yes, these are all the blacks. If you count them between northern and southern Tribeca, there are about 80 new residential developments. That's the glut.

• PAUL SOLMAN:

  A glut, says Roubini, that will drive down prices, housing values, and construction activity, leading to a general recession. But that's a bit extreme, says economic forecaster Ed Yardeni, a longtime Wall Street bull whom we'd asked to join us, listen to Nouriel Roubini, and respond.

• ED YARDENI, Chief Investment Strategist, Oak Associates:

  Look, it's very possible that we'll have a recession; you never want to rule that out. Housing is in a recession for sure, and the jury's definitely out right now on whether that spills over into the rest of the economy. I don't think it will.

  Consumer spending is very strong because we're creating lots of jobs. Real incomes are very strong, all-time record high, and business is still spending.