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.
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[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:

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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