By: Todd Wheatley
(c) IQ-2k   08-02-10

Since the earliest colonial period the "landed gentry" held the source of American wealth and power. Then as the Industrial Revolution grew so did the merchant class and the subsequent political downgrade of "land". Eventually even the common "homeowner" began to hold sway as local property taxes increasingly financed public works and schools. More recently the surge in home prices fueled a spectacular economic boom and in turn the so-called "wealth effect" aided the rise of the Conservative Movement.

Yet even as "homeowners" lost political power to corporate lobbyists. All was right with the world so long as the housing bubble continued to inflate. Quick easy money, after all, remains much more sexy than political ideology. But now here we stand ... on the precipice ... and an election upcoming. Only who holds the power? Homeowners? Family farmers (the last of the landed gentry)? Apartment dwellers? The homeless? NO! Corporate lobbyists.

To make matters worse more homeowners face falling home prices and foreclosure as noted in a recent Associated Press article (7-15-10). It is reported that up to 1,000,000 homes face foreclosure this year. That is up 100,000 over last year (900,000 / 2009) and ten times the annual foreclosure rate (100,000-per-yr). An NPR report (7-29-10) punctuated the foreclosure trouble stating that an increasing number of stable market urban homes are under foreclosure.

Therefore it is hard to imagine that the economic recovery can be sustained given such widespread hardship. Taken collectively the "negative wealth effect" that started with the 2008 market crash has broadened. Intangible "paper losses" are creating a tangible economic reality. People are becoming more frugal and without robust demand companies have little incentive to hire. That, however, is looking ahead. Today, Second Quarter profits have exceeded expectation. So combined with a strengthening credit market a modest improvement in the housing market should be expected. But a return to normalcy?!

Don't even think it! Unless you are ready for the "new normal" -- something that will look more like 1985 rather than 2005. That means fewer and smaller homes. More importantly those homes will tend to be more urban than suburban. Not exactly the death of "urban sprawl", but certainly growth in the Xurbs & RUburbs will drop precipitously. Moreover the quintessential McMansion will become a thing of the past.

The trend has already begun as June Housing Starts are the lowest on record (started in 1963). And even though June Sales saw a major jump, prices are still down. Overall a CNN Money article (8-2-10) notes that the average home price is down 25% from the 2007 high. The article also notes the more striking drop in condo prices, off by more than 65% as reported by the National Association of Realtors (NAR).

So the real question becomes one of long-term sustain- ability. With fewer new homes being built and fewer existing homes on the market it should be assumed that prices will rise. But again there's the foreclosure trouble. Fortunately the banks are holding on to their troubled assets, but as they slowly release those properties prices will remain depressed.

Several other factors must also be weighed when computing long-term home prices including an aging Boomer generation, stagnate wages, and GLOBAL DEFLATION. In other words home prices have hit a long-term peak though individual markets will certainly see some modest appreciation. The first positive signs should be a strengthening of the rental market. Though some reports point to stagnate rental prices due to the return of multi-generational households.

It seems that these tough economic times are forcing adult children to continue living with parents and grandparents rather than owning or renting. Similar situations are being observed for people invovled with foreclosures. Hence there is lower rental demand despite population mobility. Though as economic conditions improve housing demand will improve even more dramatically.

For now the return to multi-generational housing bears watching as a social phenomena. Especially when combined to the downfall of urban sprawl a shift in political sentiments should be expected. Closer family ties should mean closer political views between generations. There- fore the ability of political candidates to capture the "youth vote" as Barak Obama did in the 2008 election will become ever more difficult.

In the long-term today's housing situation brought about by the 2007 / 2008 economic meltdown is having measurable political and economic effects. Large-scale negative wealth is bringing families and urban communities back together and the shifting political sentiment could have strong implications for the corporate takeover of the American political system.


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