Wednesday, September 14, 2011

Can Housing Alone Pull Us Out of the Recession?

Article: Penelope Lemov, The Trouble with Housing, Governing, Sept. 15, 2011, available at

Summary: The author of the article interviewed Doug Duncan, the chief economist for Fannie Mae; David Merriman, an economics professor and associate director of the Institute of Government Public Affairs at the University of Illinois at Chicago; and Tracy Turner, economics professor at Kansas State University.

Here is the gist of their responses:
  • Economists have long held that housing is the industry that typically leads the nation out of recession 
  • Industry forecasts still predict housing will continue, for the foreseeable future, to be a drag on the economy 
  • In the U.S., there are only 60,000 completed new homes available for sale -- the lowest number since World War II 
  • The housing market is particularly hard on laid off (or in the case of Hawaii, payroll reduced) government employees who work in public schools, fire departments and police  
  • Because housing values are low, people and businesses are conservative about spending and reluctant to invest or expand 
  • This is the largest housing bust since the Great Depression 
  • For every $1 decline in house value, a homeowner spends 6 cents less in the community, which takes a toll on the sales tax and on general economic activity 
  • Mr. Merriman says, "a recovery in housing is key to an economic recovery," but Ms. Turner concludes, "I wouldn't rely on housing to lead us out of this recession."

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