Housing and Jobs

There's a new report out talking about renewed weakness in housing.  My take on this is it reinforces the importance of added stimulus to help the economy along.  Residential investment in housing as a percent of GDP is in the 4 - 6 percent range (see graph here)  It's interesting to go back to 2008 and see how these issues were talked about then.  While that article mentioned the drop in exports, later last year, net exports (exports minus imports) grew and were a bright spot in the GDP numbers.  Click here.  It's striking to note the decline in consumer spending and the dramatic drop in both housing and non-residential investment, with the latter falling off a cliff.  Housing prices aren't going to recover until consumers are feeling more flush rather than flushed out.  In turn, the jobs and income situation is going to need more improvement before consumers start spending more.

While analysts point to the drop in housing prices as the trigger for the recession and the current drag on the economy, I think the fall in housing prices is more symptomatic of the problem (they certainly are part of the problem).  It's housing prices and their impact on equity, and how drops in equity combined with greater financial uncertainty, and bank's reluctance to lend that have combined to undercut consumer spending.  Consumer spending is the key to economic recovery.