Anne Panfil
Lambertville
There is a very good reason why the economy is stuck and why it will be for a very long time. Home buying during the housing bubble employed legions of roofers, carpenters, plumbers, concrete men, etc. But today, few jobs are being created in the hard-hit construction industry, which is a significant contributor to the unending unemployment rate at 9.1 percent. All signs point to deep economic sickness.
For those who follow events outside the United States, our anemic real estate market is mirroring what happened in Japan, where home prices fell for 15 years after that country’s real estate bubble burst in the early 1990s. Japanese property owners lost close to two-thirds of their value, and the Japanese market has not reversed itself yet. Land prices in Japan in 2009 were back to 1980s levels.
Is this our future? So far it seems likely with the government allowing the banking sector to go into zombie mode with a massive amount of shadow inventory. There are more houses to be foreclosed in the U.S. than have been through the foreclosure process already!
Property owners looking to sell should understand that buyers have fewer reasons to buy a house and little urgency to do so. Aside from a glut in housing inventory, personal income is declining year-over-year since records have been kept. And how do people pay their mortgages? From actual earned income? This is an important point. Household income has been negative for well over a decade. Homebuyers needing financing are not qualifying for mortgages. And for those who can get financing, they are thinking twice about betting their fortunes on home ownership.
The notion created during the housing bubble where people counted on and expected property values to increase year-after-year is not the new-normal. As it turned out, those expected increases stopped and are not happening. Instead, home prices have tumbled 34 percent nationally from the peak in the first quarter of 2006 to the first quarter of 2011 — or 40 percent in real terms — and they still appear to be falling. The brief “recovery” in home prices of 2009 and 2010 was most likely spurred by federal housing stimulus measures like the homebuyer tax credit. After that stimulus ended, prices resumed their downward trend.
Renting makes the most economic sense in a depressed housing market. When home prices are not appreciating and may be declining, the prevailing rates for 30-year mortgages — now hovering between 4.5 and 5 percent — means buying a home with a mortgage certainly isn’t a way to get rich. When home values are flat, 4.5 percent mortgages are no bargain. It confiscates personal wealth because there is no return on your investment. You pay out and get nothing in return.
The only solution is to get jobs and consumer spending reignited to spur demand. When people spend our economy is stimulated. But we need to put more money in people’s pockets.
Without public sector wage and pension reforms, we stand no chance of lowering taxes and increasing disposable income to stimulate the economy. The state’s unions fight these reforms at their own peril.
