Foros de la Plataforma por una Vivienda Digna

[billy]

What would a housing recession mean?

Mmmm... smell the brownies?

They're gooey, chocolaty - and they carry the unmistakable whiff of economic trouble.

All across America, that warm, inviting aroma of homes-for-sale is filling the air.

Of course, it's one of the oldest tricks in every real estate broker's book. Stick a plate of brownies in the oven just before the prospective buyers show up, hoping the olfactory rush will make them reach for their checkbooks.

If the data out this week are any kind of indicator, boxes of instant brownie mix should be flying off supermarket shelves for at least the rest of this year. And unless they do the trick, it looks as if the first big housing boom of the new millennium is finally over.

On Wednesday, we learned that sales of existing homes fell 11 percent in July from a year earlier. Prices fell, too, in every region except the South; the median house price in the Northeast was 2.1 percent lower than a year ago.

Yesterday's news on new houses was even starker. July sales were down 21.6 percent from the year before, and the nationwide number of new homes with "For Sale" signs in the front yard hit a record 568,000 - up 104,000 from the same time last year.

Forecasters calculate that if all new construction stopped today, it still would take builders more than six months to sell off all the houses already on the market.

There's a term for what this looks like, but until now, few forecasters were willing to utter it. No longer: "We have what could be called a housing recession," Wall Street economist James O'Sullivan told Bloomberg News yesterday.

But does a housing recession mean the same thing for the wider economy? That's a tougher question.

Certainly the passing of the bubble, if that's what it is, will be felt: Housing and all its related activities (construction, sales, financing, etc.) have accounted for something like a third of all the jobs added in the United States since 2001.

Even beyond job creation, rising home prices have stimulated consumer spending. People feel richer when they think their house is gaining value. And thanks to an explosion of easy-credit financing, it's been a snap for consumers to use their homes as cash machines, using home-equity loans to pay for everything from college tuition to holiday gifts.

Even if home prices don't fall, but simply stay flat, much or all of that activity will go away. That means less spending, fewer new jobs, and a decline in overall economic growth.

Until now, housing was like a booster rocket on the economy; now economists expect it to act like an anchor, slowing down growth in the gross domestic product by a percentage point or more per year.

Instead of growing at 3.5 percent - roughly the recent average rate - we could average about 2.5 percent growth, roughly the rate we grew before the technology jolt of the 1990s.

If all that's not worrisome enough, The Economist magazine reminds us how the real estate boom is different from the tech bubble.

Even though a lot of money was lost chasing dot-com stocks, that earlier mania spawned some very important companies and technologies. Google alone has permanently changed the way we look at information, for example.

Soaring house prices are much more ephemeral. Yes, the boom brought needed residential investment to cities such as Philadelphia, but it's still unclear how that will produce better long-term growth.

In many places, moreover, house-price inflation merely redistributes wealth, rather than creating it.

In any case, the end of the real estate boom puts a new importance on other sectors, such as research, manufacturing and global trade.

Our prosperity will depend on what we can produce and sell to the rest of the world, as opposed to simply swapping what we already have for ever-larger numbers on paper.

It could be a difficult transition, to say the least.

Better prepare yourself - but have another brownie first.
http://www.philly.com/mld/inquirer/business/15354641.htm?source=rss&channel=inquirer_business
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