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When it comes to the economy EVERYBODY has an opinion and this writer is no different. That said it is my opinion that we have hit the bottom and that the fundamentals are pointing toward recovery. The nature of the recovery is the unknown. Some think it will come right along, with the beginning of recovery in housing and that will add employment resulting in more consumer spending which will lead to increased production and more employment. The other camp seems to think that employment will languish as businesses are cautious about increasing inventory too quickly and housing starts haven’t lagged permits for more than a year so there is no production waiting in housing. Permits will be slow and housing starts for inventory (Speculation) will be very slow. In part because of the economic concerns and partly because banks still aren’t willing to lend.
From the very beginning I wrote:
10/27/08
Housing:
This is the core problem according to Bernanke and others. This month (September) was the best performance this year and has shown a real stability in units sold throughout the year averaging 5.5 million units. Well down from 2005 but showing real resistance to falling below the 5.5 million annual range.
Since then housing bottomed out at 4.799 million units in March 2009 reflecting another nearly 13% decline in the annualized rate of home sales (new and resale).
Housing, not health care, not unemployment, not anything else but housing is the cause of this recession and it’s recovery is essential to the economic recovery. Until we stop wasting energy on these other issues (GM, Chrysler, Finance, health care reform - granted all are important) and fix the housing problem we will not have the footing for a strong recovery. It will take political will from the leadership of both houses of Congress as well as the White House to put aside the other populist issues and do what is needed. It is the only way to create a vibrant tax base to fund those other important issues without massive increases in the debt.We have the equivolent of an elephant to eat. The only way to do it wothout choking is one bite at a time.and the first bite must be housing.
The stimulus did not work very well, (less than 25% has actually been spent) while housing languishes. Confidence in this country has always been based on the theory, “buy land, they ain’t making any more of it” – anonymous quotation. When land (housing) values are stable, we Americans have confidence. We take it for granted and when something that much a part of our lives is suddenly challenged it makes us very wary. Europeans have seen war, many parts of Asia have seen war. We haven’t seen war on the US mainland since the 1860’s. For most of us, it is a given like gravity. Housing value has always been there.
Housing will stabilize with or without interference by the government. How long that takes and how much it hurts ‘Main Street’ before it reaches stability is the factor. The government efforts should have been to help it reach stability more quickly and less painfully than the natural movement of the market would. It has, to date, not done that very well.
Once pricing stability is achieved in housing, people will begin to spend on other things. Since our economy is 66 – 70% consumer driven that will spur recovery. Businesses then can begin to hire and unemployment will at least stop rising. That, too, will add to the consumer confidence and increase the pace of recovery. Here in Wilmington, NC that is even more critical because housing and its related employment are such a big part of our local economy.
On the bright side, we will be looking back in 2013 and see how it all worked out. Kids starting college this year will be graduating into better economic times. It will be up to them to take us to new economic highs and assure our position in the world economy.
