Monday, May 16, 2011
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?
SAN DIEGO 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.
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.
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.