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Working in real estate, I have seen clients come and go. I have also seen home prices rise and fall, and can say that home ownership is tied very tightly into the backbone of the national economy.
“Recession” is a frightening word. Unfortunately, it is a word that the American people have become all too familiar with since the housing bubble burst and the subsequent credit crunch. Negative economic conditions have affected the people of the U.S. from kitchen tables to cafes. As we, the people, face the worst recession since the great depression, it is important to note that there is light at the end of the tunnel, starting with jobs and housing prices.
American economics is really quite simple, and has little to do with news blips from the talking heads on television regarding of the price of tea in China or current stock market rates. It is home ownership-centric. While financial recovery does not begin with home ownership, it is one of the early indicators to that denotes recovery.
Let’s discuss unemployment
A timeline of unemployment statistics covering the years from 1991 – 2010 published by the U.S. Bureau of Labor and Statistics conveys a clear message. As unemployment dropped as low 4.4 percent in 2005 and 2006, more Americans could afford homes. As a result, more Americans had equity, translating into disposable income that could be pumped back into the economy. They were taking out loans. They were buying. Everyone was happy.
Once unemployment rates rose as high as 7 percent in a single year, equity became a thing of the past. As foreclosure filings eclipsed numbers in the tens of thousands in 2008 and 2009, vacant homes littered the country, causing property values to decline further and further. Without jobs, Americans did not have money to pay their mortgages. Banks foreclosed, and lost billions. Banks and lenders everywhere had to cut costs. That meant cutting employees, and took unemployment numbers up to 10 percent midway through 2009.
Going a little deeper
Money was tight everywhere as companies continued cutting back on employees, hours and benefits. What was once disposable income in many households was no longer so disposable. With no consumers to spend money, businesses began shutting down, resulting in even more lost jobs and, in turn, more foreclosures.
As it stands right now, there is still too much uncertainty within the average family to go out on large shopping or spending sprees. In fact, many families I know are planning very lean holidays and fewer outings and vacations then ever before. Budgeting has become important in many households, as families everywhere have tightened the purse strings, avoiding frivolities. The focus with most people has shifted from spending to saving, until they are confident that they will continue to maintain employment.
The single most important primary sign of economic growth and improvement is steady decline in unemployment numbers. When consumers have jobs, they buy homes. More home ownership results in increasing home prices, making mortgage backed securities a good investment, ultimately revitalizing the stock market and the economy. Until we see a steady dip in joblessness reaching 7 percent or below, I would refrain from making any major investments until you are able to see clearly which way the wind is going to blow.
While economists are out chasing their tails and speculating on stock prices and recovery benefits, it seems that the rest of us do little more than wait for an answer–a definitive sign of economic recovery. With jobless rates still in the high 9 percent, an answer does not appear to be forthcoming as we near 2011.
U.S. Bureau of Labor and Statistics
The Christian Science Monitor: Five Signs to Measure Economic Recovery in 2010
The New York Times: From the Mall to the Docks, Signs of Rebound
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