It’s all about housing

The economy will never return to a high level of growth until the housing market recovers, and unfortunately that recovery is still not in the cards.  I get a kick out of listening to all these economic experts who try and analyze the economic tea leaves.  For the most part they focus on the short-term while ignoring the biggest economic event of our lifetimes.  Specifically, my generation made lots of money in real estate. If you were smart and had the luck of good market timing a small fortune could have been made by buying and selling real estate.  However, the bursting of the housing bubble in 2005-06 marked the end of the housing wealth effect.  I wrote about the "wealth effect" many times prior to the bubble bursting and warned of the dire economic ramifications.  When housing kept rising in price people felt more prosperous and used the expanding equity of their homes to spur other purchases, which in turn was great for the economy.  Today, just the opposite seems to be happening.  Many people are under water on their mortgages and in turn they have felt a lot less wealthy and not inclined to spend much.  The economy will not get into high gear until housing is once again providing a source of comfort for folks.  Unfortunately, there is scant reason to believe that will happen any time soon.

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