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What’s Good For The Housing Market Is Good For America

Audio

Aired 5/16/11

This corruption of General Motors CEO Charlie Wilson’s famous quotation should really be a question: Is our still-depressed housing market really that bad for the economy?

— My corruption of General Motors CEO Charlie Wilson’s famous quotation should really be a question: Is our still-depressed housing market really that bad for the economy? Marney Cox, senior economist with the San Diego Association of Governments (SANDAG), seems to think it is.

The lagging home market is bad for construction and that's bad for the economy.
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Above: The lagging home market is bad for construction and that's bad for the economy.

Although the California economy is showing signs of recovery, home prices are still going down. The latest Case-Shiller housing numbers show home prices in San Diego were down almost 2 percent from the previous year. They’ve fallen nearly 40 percent since the home-price peak of 2006.

“The housing market is still looking for the bottom,” said Cox.

A recent blog post from the Economist magazine questioned the conventional wisdom that says the economy will continue to lag until the housing market is headed upward.

The blogger argued a slow housing market is only bad for the economy if we assume new home construction is an vital part of the GDP, and if we assume high home prices will encourage people to buy lots of stuff by borrowing against their homes.

Cox said low home prices may not be the cause of a bad economy but they are typically a leading indicator. Falling home prices lead us into recessions when things get bad. Rising prices lead us out of them when things improve. Simple economics also tell us that low home prices indicate a consumer base that’s still being tight with its money.

“If that’s true for that industry, could it also be true for a broader range of things, whether it’s automobiles or normal stuff you purchase at the store?” he said.

Borrowing against your home to buy consumer goods may not be a great idea, but Cox said it’s more simple economics. The greater your asset value the more likely you’ll be leverage it to spend on other things. And a country that’s isn’t consuming a lot of goods is one that will remain in a slow economy.

Cox added that the construction industry is very sensitive to the housing market. When home prices are high, construction jobs increase. In San Diego, 40 percent of the job losses we had during the recession came from the loss of construction jobs.

The moral of the story we hear from Cox is root for higher home prices. It may be bad for people looking to buy. But Cox suggests what good for home prices really is good for America.

Comments

Avatar for user 'radiofree'

radiofree | May 16, 2011 at 8:43 p.m. ― 2 years, 11 months ago

There are more things in heaven and earth, than are dreamt of in your philosophy. The old model does not apply to this particular economic downturn. The makers of the old model never imagined the big money boys on Wall Street would destroy the housing market so effectively. The economy has turned upward and is slowly growing, in spite of a housing market that is still down.

The big question is what is to prevent this kind of market manipulation from happening again. The big money boys do not want to be regulated so they have successfully short-circuited attempts to do so. The Republican mantra is let market forces regulate the economy. But we are still felling the pain of an unregulated financial sector. Without effective regulations, the same kind of destructive manipulation will certainly happen again. Why should we expect otherwise. No one responsible for the market collapse has gone to jail. In fact, they made money on the collapse and they are still in charge of the same too-big-to-fail companies.

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Avatar for user 'Tom Fudge'

Tom Fudge, KPBS Staff | May 17, 2011 at 9:04 a.m. ― 2 years, 11 months ago

The idea that the manipulation of the housing market makes this situation different is a good point. In fact, Marney Cox admits there have been times when rising housing prices did not lead us of out of recessions. It's just the exception, not the rule. The financing of the housing boom has created so many distressed properties that they continue to drag home prices down, even as consumer demand for other goods may be increasing. Good to look at consumer confidence indicators to see if home buying is the exception to an otherwise improving economic situation.

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Avatar for user 'hopeheadsd'

hopeheadsd | May 18, 2011 at 11:14 a.m. ― 2 years, 11 months ago

For people that are able to afford a home in San Diego, there is growing uncertainty. Not everything thinks they are supposed to own a home anymore and this is a social mindset that I think is starting to take shape.
How much is that house really worth to me over 30 years.
Historically some areas are more affordable now than they were not too long ago, but that really isnt saying much when there is a lot of that and its still too expensive for that demographic.
I believe that people want to save and pay off debt right now.
A 30 year mortgage doesnt sound too appealing when things are so shaky.

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Avatar for user 'HarryStreet'

HarryStreet | May 18, 2011 at 11:30 a.m. ― 2 years, 11 months ago

I heard someone ask, "Is owning a home still the American Dream?"

As a homeowner I have to say it is for me. Whether or not it's the same for future generations is questionable. But think about this. Regardless of what we choose to do in life, going home at the end of your day is something we look forward to. To sit inside our own world we create, among friends, family, pets, and relax with your quiet time helps us appreciate the fruits of our labor. I believe owning a home will always be an American Dream. The problem is that it's not an affordable dream for many. Property taxes, the cost of gas and food, low-paying jobs seem to be the way of the future.

I suppose it needs to get worse before it starts getting better.

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