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New-Vehicle Sales Tied to Housing Market Decline, Reports CNW

May 20, 2008

States that counted on home equity loans for new-vehicle purchases before the housing market’s meltdown will continue to suffer serious new-car sales deterioration, according to new data from CNW.

Hit hardest were California and Florida, which have seen new-vehicle sales declines of 7.48 percent and 6.55 percent, respectively. The two states took top honors in CNW's top list of states where home equity loans were used for new-vehicle sales. California used home equity loans 29.83 percent of the time while Florida used them 19.72 percent of the time.

"Lower equity translates into an inability to borrow against the house to by a new car," wrote Art Spinella in CNW’s monthly e-newsletter. "And, not surprising, the majority of states where home equity loans are used extensively for new-car acquisitions have suffered a larger proportion of sales losses versus 2006."

Following those two states were New Hampshire, Rhode Island, Massachusetts, Illinois, Connecticut, New Jersey, New York, and Nevada. Looking at the top 20 states, home equity loans were used 11.77 percent on new-vehicle purchases.

The Bandon, Ore.-based market research firm said it will take a reduction in newly constructed house inventories, which is already happening in the two most populous states.

Six months ago, the supply of unsold new houses in California was running in excess of 80 months, according to CNW data. Today it is less than 40 months and continues to improve. By fall, CNW anticipates the days' supply of unsold houses will be less than 20 months.

The result of lower inventories will be higher home prices, which should drive increases in home equity.

"The day is coming again," Spinella wrote. "Probably not until the final quarter of this year or the first quarter of next, but in either case a California turnaround will benefit all auto sales in '09."

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