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Economists Praying For Housing Recovery

By Mike Wheatley | June 2, 2011

It’s a vicious circle we’re stuck in folks. Home prices won’t go up until there are more jobs, but there won’t be any more jobs around till the housing market recovers.

This is a big problem because right now, both the broader economy and housing markets are struggling to get into gear. With hiring losing steam and home values hitting new lows, many observers are predicting even more declines in home prices.

Economists are desperate for housing markets to pick up. Courtesy of Static Guim

“The economy might be able to improve a little without housing, but it certainly won’t be able to flourish and bring down unemployment levels significantly unless housing revives,” said Moody’s Analytics Mark Zandi.

Along with the mortgage giants Fannie Mae, the biggest brains at Moody’s Analytics are forecasting that home prices will drop even further, by another 5% by the end of 2011.

However, some economists think that a recovery is even further away than they think. Dean Baker of the Center for Economic Policy and Research is one of them, and Barry Ritholtz of Fusion IQ is another. They are both of the opinion that current home prices are as much as 12% overvalued.

New jobs will mean more homes, and even more jobs. Courtesy of Yasa

“Right about now, real estate is what we call a falling asset class,” said Ritholtz.

Throughout history, it has usually been the housing markets that lead the economy to recovery, through the surge in construction and the new jobs that brings, and also the high demand for products and services needed to make a happy new household.

“A broken housing market freezes the whole economy,” says Ritholtz.

Baker is also worried about what will happen. “Housing was so important to previous recoveries, but today it isn’t happening. I don’t really see any other way though,” he admitted.

Fannie Mae insists that more jobs need to be created before the recovery begins. Courtesy of Opposing Views

On the other side of the card, we have Doug Duncan, an economist with Fannie Mae. He is more concerned about the impact of housing on jobs, and vice versa.

“We’ve said all along, it’s vital we raise employment levels,” says Duncan. “Until employment grows, income won’t grow, and so housing markets won’t grow.”

Duncan is now looking forward to the monthly unemployment report from the government this Friday. He says that if the economy slows down again, he will have to yet again push back the date of an expected housing recovery to begin.


Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
  • One comment on “Economists Praying For Housing Recovery”

    1. Why does everyone seem surprised ?The answer to the present delemma is,to Quote Hank Paulson,when interviewed by FOX News,when he was asked..." of the 737 Billion dollar TARP money how much...will be lost?
      Perhaps,it was too good to be true,because they have done EVERYTHING else but resolve that issue.
      They tried by giving billions to banks,but they used that money to make money (can you believe that...banks using low cost money to make money instead of righting a wrong ?)

      The solution is simply.It will stablize prices It will increase employment and lower the national debt.
      STEP ONE:
      The Federal Reserve Bank will purchase ALL "underwater loans,Toxic loans and foreclosures at Fair Market Value plus 10%.The FRB will use...QE3...for up to $10 trillion dollars.
      Wouldn't this be an immediate solution to the housing crisis! Wouldn't this create 2 million jobs in constrution and real estate .
      If you think that is dumb,wait you have got to hear how it reduces the national debt 1
      The FRB will then underwrite ALL the assummable mortgages
      with 36 year loans @3% and to qualify you must have paid taxes for two years and showed earnings that woud allow the LOW AFFORDABLE MONTHLY PAYMENT.
      This would provide a $10 trillion dollar TAXPAYER PROFIT! Goodbye NATIONAL DEBT.
      Why is this a fairey tale/

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