FACTS ON POLICY: Notable Economic Milestones of 2007

February 5, 2008

New home construction fell 25 percent, the largest drop in 27 years.

In 2007, construction on 1.35 million new houses and apartments was started, reflecting a 25 percent decline from 2006 levels. The number of new housing starts in 2007 was at its lowest level since 1993. According to the New York Times, this is the first time that the housing industry has seen such a slowdown during a nonrecession period.

In fact, 2007 was a year of several new records and milestones. Here are a few others:

1. Mortgage defaults and foreclosures hit record highs. The number of mortgages that were either in default or foreclosure totaled one million in June 2007, reflecting a 50 percent increase in two years.

National mortgage default rates are at a 28-year high.

2. Housing prices fell by record rates. Between October 2006 and October 2007, the Standard & Poor’s/Case-Shiller housing price index fell 6.7 percent. This was the largest decline since the index’s inception in 1987. The Case-Shiller index tracks the price of single-family homes in ten metropolitan areas.

3. The price of crude oil approaches $100 a barrel. During the last two months of 2007, the price of crude oil increased steadily, inching toward $100 a barrel. The price of oil on the NYMEX futures market hit $100/barrel for the first time on January 2, 2008. Prices have since dropped. In real (inflation-adjusted) terms, prices for crude oil hit record highs in April 1980.

In December 1998, crude oil prices hit rock bottom at $10.78 (nominal dollars).

4. Dow hits 14,000. The stock market had a volatile year in 2007. The Dow Jones Industrial Average hit two milestones in 2007: 13,000 in late April and 14,000 in July. It ranged from a low of 12,050 in March to a high of 14,165 in October. Since October, the Dow has been in a steady decline.

5. The euro hit record highs. The European euro hit a record high in late November 2007, with the exchange rate hitting $1.49 to the euro.

The value of the Canadian dollar also hit record levels, reaching parity with the U.S. dollar for the first time since 1976.

6. Food prices hit record highs. According to the Economist, the world prices of both corn and wheat hit record highs. The price of corn hit $175 per ton. The price of wheat rose from $200 per ton in April to $400 per ton in December.

7. Fees for lawyers break the $1,000-per-hour mark. In September 2007, several top law firms in New York and other cities announced billing rates of $1,000 per hour for their top attorneys.

Figure 1
New privately owned housing starts, 1960-2007 (in thousands)

Sources:

• New home construction

• U.S. Census Bureau and U.S. Department of Housing and Urban Development, joint press release: “New Residential Construction in December 2007” (January 2008).

• MSNBC, “Biggest Drop in New Homebuilding in 27 Years,” January 17, 2008.

• U.S. Census Bureau, “New Privately Owned Housing Units Started” (January 2008).

• Defaults and foreclosures

• U.S. Government Accountability Office, Enclosure I: Briefing to the Committee on Financial Services, House of Representatives, “Home Mortgage Defaults and Foreclosures” (October 2007).

• National Public Radio, “New Foreclosure Rate Surges to Record” (September 2007).

• Washington Post, “Foreclosure Rate Hits Historic High,” June 15, 2007.

• Housing prices

• Federal Reserve Bank of Dallas, Economic Letter—Insights from the Federal Reserve Bank of Dallas Volume 2, Number 11, “The Rise and Fall of Subprime Mortgages” (November 2007).

• CNN Money, “Homes See First Annual Price Drop on Record,” January 24, 2008.

• CNN Money, “Home Prices Post Record Decline,” December 26, 2007.

• Crude oil prices

• Wall Street Journal, “Confluence of Events Drove Crude's Ride from $10.72,” January 3, 2008.

• Dow and Euro prices

• Yahoo Finance

• Federal Reserve Bank of St. Louis, list of euro rates.

• Bloomberg, “Canadian Dollar Trades Equal to U.S. for First Time Since 1976,” September 20, 2007.

• Food prices

• International Herald Tribune, “World Food Stocks Dwindling Rapidly, UN Warns,” December 17, 2007.

• Economist, “Food Prices: Cheap No More,” December 6, 2007.

• Lawyer fees

• Wall Street Journal, “Lawyers Gear Up Grand New Fees,” August 22, 2007.

Quiz Source Information:

• MSNBC, “Foreclosures Hit Some Cities Harder Than Others,” November 14, 2007.