Hey, it's now common talk that we're on a solid road to recovery. Likewise, that President Obama, now gaining in the polls, is likely to win a second term.
Maybe so, but if one perceptive and skeptical economic mind knows what she's talking about, both are about as credible as an anti-aging process that really works.
The chief reason: The housing mess -- a subject that has become a bore and no one really wants to hear about anymore -- could short-circuit both possibilities.
Here's the story!
At the turn of the year, a senior loan officer at a significant New York State bank told me its inventory of foreclosed homes had risen 28% in the past few months. I rechecked the other day and he told me the figure had now more than doubled to 61%.
"I was sure the number would have declined, given an improving economy." he says, "but I was wrong. More and more would-be home buyers seem to be afraid of losing money and are holding back on their purchases, many preferring to rent instead." He went on to note that he hears "the same ugly story" from many peers around the country.
It reminded me of a remark a number of months ago from Chicago real estate developer Robert Sheridan, who told me that anyone who buys a house these days and pays the asking price is overpaying.
He was right then and a chat with economist Madeline Schnapp made me think that's still the case. Interestingly, she reminded me that housing peaked 56 months ago, June of 2005, to be precise. Why, I wondered, should anyone give a hoot about that now? Because, she explains, housing is still stuck in quicksand, it'll take another four to five years (2015 to 2016) to get back where it once was and that strongly suggests to her it behooves everybody to take with a grain of salt all those rosy upgraded economic forecasts we're getting from Wall Street and the White House as a result of a peppier economy.
Why question such forecasts in view of growing signs the economy is in a turnaround mode? Because, Schnapp explains, one out of every 10 jobs in this country is associated with the housing sector. And she figures this struggling industry will require numerous years and a lot of Viagra to re-establish its potency on the economic scene, given its current sad state. Between 2002 and 2007, housing accounted for 40% of job growth and represented 20% of GDP, figures that are both considerably lower at this juncture, and Schnapp thinks it will take many moons to restore such numbers.
A number of real estate optimists have been insisting for well more than a year that we're on the verge of a housing rebound and some are still saying it. Sounds hopeful, but Schnapp, the economics chief at West Coast liquidity tracker TrimTabs Research, partially owned by Goldman Sachs, warns that playing catchup anytime soon is totally unrealistic, given such significant sales-stifling housing problems as:
- A bulging inventory of 5.8 million new and existing vacant homes, about two million of which is a shadow inventory (foreclosed houses owned by banks that have not been put on the market). That's about a 15 months' supply.
- The number of houses under water (meaning the mortgages are greater than the value of the homes) continue to swell. They now stand at 14 million or 27% of the 53 million U.S. homes, up from 25% a few months ago.
- Foreclosures continue at a sizzling pace -- 255,000 a quarter or more than one million a year.
- Mortgage delinquencies, which often herald future foreclosures, now stand at a hefty seven million -- which is only one million below the January 2010 peak despite all the stimulus packages.
- Rising mortgage rates. In November, the 30-year mortgage rate was 4.2%. It's now above 5%.
In effect, Schnapp is telling us the housing horror show -- which seems to be competing in longevity with such long-running hit Broadway plays as Cats, Phantom of the Opera and Chicago -- is far from over, could well sabotage economic growth and wreak havoc on the stock market. She also expects homeowners to suffer another 10% drop in housing prices this year
President Obama obviously disagrees with such a negative assessment since his budget calls for GDP growth of 4% in 2012, 4.5% in 2013 and 4.2% in 2014.
"No way, that's nuts, not the way housing is. Obama is living in fantasyland," says Schnapp, who thinks an average growth range of 2.5% to 3% in the three-year period is far more realistic.
Her rationale: Aside from a depressed housing market, she points to such economic deterrents as financially strapped state and local governments (which means job cuts or higher taxes), higher energy prices, the June ending of QE2, high unemployment, widespread consumer deleveraging and massive deficits.
Meanwhile, some other observers also see serious consequences from the ongoing housing woes. One is Florida investment adviser Martin Weiss, author of a New York Times economic best seller, who referred to housing in a recent promotional commentary on a new book he's written. In brief: "With home values still sinking, unemployment still high and states across the country announcing major cutbacks, we're facing bubbles and busts unlike anything we've seen in our history."
All of this would seem to have political implications for Obama, now a tad above 50% in the polls. In 2012, the nation will expect a considerably better economy, especially on the employment and housing fronts. Schnapp's glum housing outlook with its negative economic consequences suggests it may not happen. Since voters vote with their pocketbooks, the worsening housing mess Schnapp is talking about could just possibly derail Obama's bid for a second term.
There is an old saying from sports losers: Wait till next year! "Where housing is concerned," quips Schnapp, "change that to wait until five years."
What do you think? E-mail me at Dandordan@aol.com.
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