Friday, May 27, 2011

Housing Is Still the Issue

The American economy continues to struggle, regardless of what equity prices show. The slowness of the recovery reflects a couple of things--the fact that the recession started with a financial crisis, and the excess supply of existing houses. It does not make sense to build a lot of new homes when there are so many homes on the market and when foreclosures are still so great. The failure by the Administration to see accurately the causes of the recession led them to pursue solutions that were bound to be ineffective. Not that there are easy solutions to the housing market problems. Low interest rates are not the stimulus they might be when people owe more on their mortgage than the house is worth, and when consumer debt levels are high. Getting more money into the hands of households would make sense, but counting on spending on shovel-ready projects that provide funds to highway construction firms does not help carpenters or homeowners.
Eventually, debt levels will fall, house prices stabilize and housing will recover. But eventually has already been a long time and remains a longer time yet.

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