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Sun

05

Nov

2006

Is Another Recession Looming? Growth Slows, Housing Fizzles
Sunday, 05 November 2006 06:06

By Seth Sandronsky
 

U.S. economic growth rose at an annual rate of 1.6 percent in July–September, the slowest in more than three years, the Commerce Department recently reported.  By way of comparison, the nation’s rate of growth was 2.6 percent in the second quarter.  What is happening to nearly slice the growth rate by half in an $11 trillion economy?

In brief, growth in residential housing dropped 17.4 percent in the third quarter.  Housing’s fall was 11.1 percent in the second quarter.  This downward trend has been underway for the past 12 months in the U.S. economy.

Economists have a word for two straight quarters of declining growth: recession.  Is the housing dip forecasting a 2007 recession?  That is unclear.

Clearly though, a recession is very bad news for the U.S. working class.  On that note, housing has been a motor for employment in the building, financing and furnishing of existing and new homes.  “Last year, housing could be credited for creating over 15 percent of the year's new jobs”; reports the Economic Policy Institute, “this year housing-related jobs will account for less than 5 percent of the economy's new jobs.”


Meanwhile, there is an excess inventory of existing and new homes nationwide.  This excess is reducing home sale prices.  Such price cuts take place with regularity in a market economy when supply outstrips demand, no matter the commodity.

For one U.S. trade group, it is time to step up the sales effort, presumably the key to reversing the weakening trend in residential real estate.  The National Association of Realtors launched a $40 million “Buy Now” ad campaign on November 3 in major daily newspapers such as USA Today to lure potential buyers back into the housing market.

In January, the NAR ad will also appear on radio and TV stations.  How much of a dent will these ads have on reducing the excess supply of U.S. residential housing?  Moreover, how long will it take to bring housing supply into line with market demand?

These are not academic questions.  In the meantime, home sale prices will likely continue their drop from the historic climb that seemed in hindsight to have no end.  This trend is a bitter pill to swallow for sellers and their real estate agents now.

New and returning Democrats and Republicans will after the midterm elections in all likelihood have to deal with a slowing economy, thanks in no small part to a drop in housing.

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Daniel Cole said:

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just raise interest rates to save the US dollar on the world market and the hell with irresponsible homeowners who bought during a bubble and don't know how to live within their means.
 
November 05, 2006
Votes: +0

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