While I am always an optimistic and upbeat person when it comes to nearly all things in life, I remain concerned about the prospects for US economic growth in 2011. There continues to be the need for more time to repair the beleaguered American economy. GDP growth will happen in 2011, however, it will be below historical norms and what is needed to bring down unemployment.
This quote paraphrasing Harald Malmgren published today sums-up my concerns:
"For the U.S., he avers, the unrelenting deleveraging of household debt, the rise in the cost of fuel and food, the stagnation of income and the negative wealth effect of a continued decline in home values strongly suggest discretionary spending, which so many economic seers are counting on to spark a quickening of this slowpoke recovery, is more than likely to 'disappoint' in 2011.'"
Abelson, Alan, 2010. Insolvency stalks china's banks. Barron's, Dec. 18.
I think it is especially important to note that for many months the business press has put forth forecasts of a turn around in the housing industry. If anything, things have become worse.
The inability to forecast the bottom of the housing market infers that analysts and reporters are looking at the data in a biased way, or that perhaps no one really understands what is actually going on in the market. The deep involvement of the Federal government and a good dose of wishful thinking by analysts, banks, developers, government officials and others continue to confound the situation. Further, rants by local developers like the example below from Lorain County, Ohio are truly frightening in terms of how they perceive business, financial risk, and civil society in general.
As I was told, this article appeared in the Chronicle Telegram as a paid advertisement. It was not published as an editorial or letter-to-the-editor.
Alan Abelson of Barron's always has the special ability to pick out the meaningful information from the clutter and to write about it in a memorable way. In his article cited above, an insightful three paragraphs sum up the situation in the housing industry (prospects for increased housing starts) bold added:
"But, as Mark Hanson, who knows just about everything there is to know about housing, points out, on a seasonally unadjusted basis -- which frequently is much closer to the way things really are -- November starts were actually down 6.1% from October, 4.3% from November 2009 and some 35.4% from April."
"Far from signaling a sustainable turnaround, he envisages building permits and single-family housing starts double dipping, as the industry simply can't get hold of any stability in pricing power."
"He grants that starts obviously are closer to the bottom than ever before because 'the number can't go to zero.' But, he insists, there's nothing to suggest starts have to increase much, either, even were lagging household formation to suddenly shoot up. It's an open question, Mark believes, whether home builders will be able to construct houses cheaper than they can sell them, given the formidable overhang in supply and pressure on prices from foreclosures and short sales."
It seems clear that there will be little if any turnaround in the housing industry for 2011. Home prices, new and existing, will remain flat and perhaps will decline further. Along with several other things, this will be a major drag on the US economy as wealth locked in home equity remains stagnant and well below peaks recorded in 2007. Some believe that the housing industry will not recover before 2014.
If folks did not understand the decimating effects of an asset bubble (like what happened in housing) before the 2008 financial crisis, I certainly hope they understand now!
No comments:
Post a Comment