By: Todd Wheatley
(c) IQ-2k   09-22-09

Housing is the third leg of an economic tripod that supports modern society in the United States. The other two are the broader economy and employment. Each leg affects the other and all tend to grow or contract in unison. At present both the broader economy and employment are down. The third leg, housing, created this mess. For nearly a decade widespread mortgage securitization removed traditional safeguards. Loans were being handed out like candy at Halloween. Anybody and everybody got one and in many cases more than one. The millennial housing boom was extensive, but not unprecedented.

There have been three major housing booms in the modern age: the 1950s, 1980s, and the 2000s. But don't plan on another anytime soon. The over built millennial housing boom will combine with the aging "Baby Boom" to seriously affect the housing market. Since the Baby-Boom Generation own a great portion of this nations wealth stock prices will tend to fall as they withdraw their retirement funds. Thus the broader economy as reflected by the stock market will fall in kind. Furthermore, greater numbers of older homes will be placed on the market as "boomers" either scale down for retirement or enter assisted living.

Unfortunately the coupling of an over built market and increasing existing homes entering the market are far from the only negative effects. The "boomers" also experienced both the dawn and dusk of middle-class wealth creation. In the future fewer manufacturing jobs will be available along with fewer middle income jobs. The gap between rich and poor will increase resulting in fewer people being able to afford their own home. Therefore the current glut of homes coupled with the credit crunch, and the so-called jobless recovery will spell disaster for new home construction and sales.

Sales of existing homes, on the other hand, should experience better than average growth as the economy claws its way back. People will be ever more mobile looking for the good jobs as the stimulus fund jobs wither. This mobility will help homes retain some investment value, but at a much lower appreciate rate. Provided that inflation stays in check. Then again, if inflation does rise CDs and other money market invest- ments would be more lucrative than housing as lending costs increase. In other words, home will appreciate in value faster, but fewer people will be able to buy.

Finally, new home construction is linked to sales of durable goods. With fewer new homes being built sales of durable goods will drop. Thus the broader economy will shrink. So combined with the "jobless" recovery and a lackluster economy housing has become a poor investment vehicle. Yet the pride of home ownership can not be overlooked. Then of course, there is China and India. It would be unwise to underestimate the potential of their global economic power. Certainly another U.S. housing boom may well emerge, but no time soon.


(c) 2009    DR-KNOW
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