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So why the long slog?

For months economists have been going on ad-nauseum about the long slog that this economy is presenting us. While sharp recessions are often followed by sharp recoveries, that doesn’t seem to be the case this time. Why is it different?

One big issue is housing. In the past, economic slowdowns led to lower interest rates, which allowed homeowners to refinance and improve their household cash-flow. The extra cash allowed households to improve their finances, and helped get us out previous recessions. Lower interest rates helped households in a very direct way.

But the housing bust has broken that link for millions. Some have reported that one out of every four mortgages in America is under water–the house is worth less than the mortgage. Home prices declined by 50% in many areas, so that’s no surprise. But refinancing is therefore not an option for the folks who are upside-down. It’s no surprise that the states that have seen the greatest decline in home prices also have the highest unemployment rates.

Underwater mortgages are a problem for homeowners and for taxpayers through Fannie and Freddie, which quarterly suck up tens of billions in losses on these loans. These folks can’t sell, can’t refinance, and can’t get credit. The resulting credit crunch is helping make this recovery a long, hard, slog.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T15:48:04+00:00 September 7th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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