The bubble and the damage done: the less talked-about problems caused by the housing market slump.(Column)

In nearly every recently published story referring to the state of the economy, one line, if not the entire body of the article, has been reserved to acknowledge the housing market and its effect on other markets. Reporters have used words like "devastated," "dismal" and "decimated" to describe it and rarely had any reason to call it otherwise. Record-breaking statistics seemed to be released on an almost daily basis earlier in the year and analysts continued to expect worse.

The figures started coming in after August 2005, when the bubble officially burst and the walls came tumbling down, somewhat abruptly. Booming markets suddenly stopped booming and economists, bankers and residential builders all started predicting the worst. Between August 2005 and August 2006, the U.S. Housing Market Index, a weighted, seasonally-adjusted measure conducted by the National Association of Home Builders and Wells Fargo and derived from ratings for present single-family sales, single-family sales in the next six months and buyers traffic, fell by just more than 50%, from an optimistic 67 to an unpleasant 33, and it didn't stop there. Over the following months it continued to drop, teetering in the 30s for the first five months of 2007, then falling all the way down to 18 in October 2007, representing a severely negative outlook.

Perhaps one of the more shocking stats to come out of the late 2006/early 2007 housing market crash was the fall in median existing home prices. "In over 37 years of data, they've only fallen in four individual months before this last couple of months," said Daniel North, chief economist at Euler Hermes ACI, in a November 2006 podcast. "It's only happened once before that prices have fallen two months in a row." These two consecutive months of decline were also the largest declines in prices that had ever been recorded.

Other statistics came out, too. New home sales declined and continue to do so, as did housing permits granted and housing starts, which represent construction started on new homes. With all these statistics swirling around and many declining through 2007, it's easy to imagine that, in addition to real estate, other industries in the manufacturing and service sectors associated with the home construction market have all been faced with difficult business conditions.

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Caught in the Current

The logic is quite simple: if no one is moving, then no one is buying a home, meaning, incidentally, that no one needs any homes built. This complicates matters for companies whose purpose it is to construct homes and also endangers the business of subcontractors and labor and materials suppliers whose financial well being is tied to a steady flow of jobs that need to be performed and completed. If a builder doesn't need a subcontractor to lay cement, then there's no reason for the subcontractor to buy cement from the supplier. While analysts and regulators have been split on the economic effect of the housing market slump on other sectors, it's quite clear that the effect has trickled down the line to suppliers and other parties involved in home construction.