Recovery? What Recovery? (Part 2)

What will get us out of our economic funk?

Housing is the Achilles Heel of our economy. We have a huge supply overhang, and it’s the most expensive item most people will ever buy. As long home prices are falling, folks are understandably concerned: a 10% decline on a $250 thousand dollar home is half of the average family’s annual income. This naturally makes people want to wait and see.

If home prices stabilize, demand will accelerate as new households are formed. There are about a million new households formed in the US every year; currently we’re only building half that many new houses. New home construction is highly labor intensive: all the design, engineering, carpentry, and trade inputs need to be customized and executed on-site. In the past, housing-related employment has initiated a virtuous cycle of increases in employment, income, retail sales, employment again, and so on.

So stabilizing the housing market is key to seeing a jobs-recovery. It’s not enough for the government to provide one-time incentives. We tried that before with the first-time home-buyer tax credit. All that did was pull demand forward from later months, when house prices resumed their fall and started the vicious cycle all over again. The new Federal program that makes it easier to refinance will help some consumers, but it won’t do much to spur demand.

What’s needed is something innovative, like offering an immigration visa to foreigners who buy a home out of foreclosure, or stapling a green-card to an immigrant’s Ph.D. Something that will spur demand, increase economic activity, and begin the hiring cycle. Only then will we see large numbers of jobs come back.

[display_podcast] Recovery? What Recovery? (Part 2)

By | 2011-11-01T00:33:44+00:00 November 1st, 2011|Economics, Global Market Update|0 Comments

About the Author:

Leave A Comment