Housing Slump, Tighter Credit Rattle Markets
STEVE INSKEEP, host:
Well, the stock market experienced its worst single day in almost five months yesterday. At one point the Dow Jones Industrial Average was down more than 400 points and the trouble has spread to Asia today. Only one of the 30 stocks on the Dow finished the day higher. Prices took a skid amid new evidence the economy may be entering a credit squeeze.
NPR's Jim Zarroli reports.
JIM ZARROLI: Just eight days ago the stock market was breaking records with the Dow hitting 14,000 for the first time. What a difference a week makes. On Tuesday the big mortgage lender Countrywide Financial said it was having more problems with delinquencies and defaults. And not just in subprime mortgages, which have been having problems for months, but in other markets as well.
Yesterday there was more bad news from D.R. Horton, the second biggest home builder in the country. Here's the company's president and CEO, Donald Tomnitz.
Mr. DONALD TOMNITZ (CEO and President, D.R. Horton): It is now clear that the selling season did not materialize this year, and our disappointing sales results and elevated cancellations have caused us to have an increasingly cautious outlook. It is unclear to us when the housing recovery will begin.
ZARROLI: That was followed by a report from the Commerce Department saying the sales of new single-family homes were worse than expected in June. This pile-up of bad news sent stock prices into a fast drop. On the floor of the New York Stock Exchange, traders' computers were a sea of red.
Mark Zandi, chief economist at Economy.com, says what's scaring investors right now is a new appreciation of how broad-based this housing downturn is.
Mr. MARK ZANDI (Chief Economist, Economy.com): It's in many parts of the country. It's California, Arizona, Nevada. It's Florida. It's much of the Northeast, industrial Midwest. So it's very broad-based. Secondly, we're seeing very large price declines, which is very unusual. I mean they are a month or two in the past where we've seen price declines, now we're going on a year of price declines.
ZARROLI: As a result, Zandi says, a lot of lenders have been offering mortgages less frequently, and when they do, they're insisting that the borrowers have better credit. The days when someone could buy a home with no money down and no credit report are ending.
And David Seiders of the National Association of Home Builders says builders are starting to feel the pinch of tighter credit.
Mr. DAVID SEIDERS (Chief Economist, National Association of Home Builders): Things have gone bad here fairly quickly since the subprime thing broke earlier this year. So it's been the sort of the extra added nail on the coffin in a sense in terms of this housing downswing. We thought we had seen stabilization of housing demand around the end of 2006, but this extra added dimension has really made things a lot worse.
ZARROLI: Now Mark Zandi says Wall Street is getting worried that lenders who've been hurt by the housing market will be scared away from other types of investment as well.
Mr. ZANDI: We're obviously seeing defaults and foreclosures increase quite rapidly. We're seeing losses on the investments that investors made in those mortgages. And you know, investors realize that they overstepped and now they want to make sure they don't overstep in other markets as well. So they are pulling back.
ZARROLI: The fear is that this pullback could lead to a full-blown credit crunch. Yesterday it looked for a time like that might be happening. Word came that financing for a private equity deal to buy Chrysler was being postponed. Private equity deals have played a big part in pumping up stock prices lately, and a lot of investors are worried that any slowdown in deals will only send prices lower.
Jim Zarroli, NPR News, New York.
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