Thursday, April 30, 2009

What the Future Holds

Provided the newly-rechristened First Horseman 0f the Apocalypse Flu doesn't wipe us out, what can we look forward to in the economy. In particular, what does the housing market portend?

I'm no economist, though I play one on tv, nor am I a real estate agent. But these numbers from Phoenix paint a bleak picture.

About a year ago, we had a real estate agent in our house who drew a chart for us projecting the future of the housing market. She drew an upside-down bell curve. She showed us near the top of the downward trend, and she said, your house won't be worth what it is today for another five years.

Which means we still have four years to go. But what does that mean?

Well, it means that even if the economic stimulus has an effect on the economy, it's ability to produce a significant positive shift is limited by consumers' ability to buy a new house. Certainly with 51% drops in housing prices, there are many bargains out there, but people who currently own a house won't be able to take advantage of them for several years, not until their own home value recovers its losses, plus the costs of selling, plus the downpayment on the new house. Because of necessary changes in bank lending practices, people who lost their homes to foreclosure won't be able to buy those cheap houses, either. Which means the glut of cheap houses will last a long time, further depressing house prices, and extending the time before current owners can afford to move.

Not four years down the road before a real recovery can begin. More like six years, and that's barring any slips. There are bound to be slips. The next recession cycle could hit before we have recovered from this one.

The fundamentals of our economy are not at all sound. I think the very idea of growth is going to have to be reconsidered. Sustainability should be our new goal, but for that to happen, there will have to be a universal reset of debt. Not a zeroing out, but at the very least a reappraisal to determine actual value. We need a societal stress test - and an honest one, not a rigged one like the banks received.

We can't achieve sustainability as long as we have to service massive debt. Debt is not sustainable. It always increases, always demands more.

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