What If Housing Does Not Recover This Year

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Many economists, perhaps a majority of them, think that housing will bottom sometime in the second half of this year and prices will begin to move back up in 2010.

The reasons for the optimism are logical and compelling. Homes will get so inexpensive that the bargains will be irresistible. The government will put money into the credit system to move mortgage rates further and further below 5%.

According to the AP, "A panel of housing experts on Tuesday projected that builders’ woes will deepen this year, pushing the prospect of a recovery into 2010 at the earliest."

What if the experts are wrong?

For starters, there are only two economic numbers worth watching for signs that the recession is getting better or worse. Experts would say that GDP is the best guide. Others would say that consumer confidence or earnings or capital expenditures are critical factors.

But, the only really important figures are jobs and home prices. They are linked like Siamese twins and they are at the foundation of the economy’s health.

Home prices are the key to the recovery in bank earnings. Mortgage derivative write-offs and mortgage defaults are killing bank earnings. The construction and home supply businesses are being decimated. The value of real estate where homes might be built is falling apart.

Housing prices also have a direct relationship to employment and consumer credit and confidence. People who do not have jobs or believe that their jobs are at risk won’t buy a home. People without credit can’t buy a home. People without confidence won’t do anything other that go to work and sleep.

If housing starts and prices do not make a tiny move in a positive direction this year, the recession will last well into 2010. If housing prices fall another 10% or 20%, the economy may be in trouble so deep that no one under 80-years-old can even imagine it.

Housing and jobs. That’s it.

Douglas A. McIntyre