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Housing Woes Continue To Take Their Toll: Are We Finally Nearing A Bottom?

Housing Woes Continue To Take Their Toll: Are We Finally Nearing A Bottom?

“WASHINGTON (AP) June 10, 2011 -- Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago. The latest bleak snapshot of the housing market came as mortgage rates hit a new a low for the year, falling below 4.5 percent for a 30-year fixed loan. But even alluring rates have failed to deliver any lift to the depressed housing industry. The Fed report is based on data from the first quarter of this year. Another report last week found that home prices in big cities have fallen to 2002 levels.”

For many months Americans have been facing news stories like the one above from the Associated Press. In this column throughout that time, I have maintained that improving the unemployment disaster was the only way to stabilize the housing market; my perspective has not changed. In the first 2 weeks of June, the stock market, measured by the Dow Jones Industrial Average, has fallen more than 600 points or nearly 5 %. Largely, this reaction in the market has been due to more troublesome unemployment statistics. The trend toward better employment figures had improved earlier this year, yet as we hit the summer months there is the anticipation of a new crop of college graduates as well as seasonal workers who will be competing for fewer and fewer jobs. There is no secret formula for making more jobs; it is normally a slow process which evolves over years of innovation and new investment by both large corporations and small individual business owners. We have apparently not provided the necessary incentives for that to take place.

The connection between employment and housing prices is an obvious one on the surface: if people don’t have jobs how could they possibly afford a mortgage payment (or anything else for that matter). However, the practical relationship between jobs and housing goes much deeper than expressed by current monthly statistics. The fact is that without stabilizing and then improving the jobs market we risk the further erosion of the entire economic system, not just the housing market.

Housing has long been viewed as a “basic industry” by the US Bureau of Labor Statistics (BLS). The BLS has long measured the relationship between basic housing market statistics and most industrial production statistics for many years. Durable goods, building materials, steel production, home furnishings, and plumbing supplies are all market segments driven first by housing. When we talk “housing” we are referring to both new home construction and existing homes. Both types of housing heavily impact the consumption of all the materials listed above. It is because of this directly correlated relationship that housing weighs so heavily on the total economic picture.

Therefore, in attempting to determine where the “bottom” will be in housing values, the question remains, is the employment picture likely to improve anytime soon? In my opinion we are likely to see some improved effort from government in the jobs arena as we approach yet another election cycle. It is highly unlikely that the housing debacle and related sky high unemployment figures will escape the attention of any voter. The voters have become better educated regarding the “quick fix” responses of government such as stimulus packages and tax rebate checks. As a result, I expect some well thought out policies and programs designed to build the employment base through long term initiatives in various arenas, including the industrial and agricultural market segments.

The opportunities in agriculture alone are limitless in my opinion. We are in the midst of the biggest food commodity boom in our history. The signs are that it may only be the beginning based on the strong, long term demand for agricultural products expressed by the most populated countries on the planet. Our production agriculture strengths in the US hold many opportunities for jobs growth and continued export expansion for years to come. The task at hand is to deploy sufficient resources to capitalize on this major strength. Agriculture is just one possibility, as we have equal strengths in the technology and manufacturing segments which have not been sufficiently tapped.

While home mortgage rates continue to be very favorable, and there are some segments of the real estate market which have shown some improvement, I think the jury is still out on whether we have seen the bottom of the housing market. Much will depend on how we respond to repairing the heavily damaged relationship between employment and housing prices.

©Patrick J. Catania 2010
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.

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