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From: Speaking of Real Estate
Date: Sat, 26 Sep 2009 12:13:38 +0000
Subject: Speaking of Real Estate
To:
JOHN@johnjrose.com Speaking of Real Estate
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Mental Recession Redux?
Posted: 25 Sep 2009 02:44 PM PDT
http://feedproxy.google.com/~r/SpeakingOfRealEstate/~3/VJ04Gab5y-M/ By Brian Summerfield, Online Editor, REALTOR® Magazine
In July 2008, in the heat of the presidential election, McCain campaign
advisor and former U.S. Senator Phil Gramm caused some controversy when he
seemingly characterized the United States as “a nation of whiners” who were
plagued by a “mental recession.” In other words, the economic problems of
the time were all in people’s minds.
Events since then would appear to controvert Gramm’s argument. The economic
troubles manifesting themselves at the time—including considerable
overleveraging among major banks, increasing unemployment, and rising
mortgage defaults—were not just figments of our collective imaginations.
However, in spite of his flawed analysis, Gramm may have been on to
something with his concept of a mental recession. In fact, we may be
heading into one right now.
According to Fed Chair Ben Bernanke’s remarks in a recent speech at the
Brookings Institution in Washington, D.C., the recession is “very likely
over.” That’s the good news. The bad news is that hardly anyone will be
able to tell the difference.
Bernanke predicts that U.S. gross domestic product will rise moderately in
the coming months, which would signal an end of the recession from a
“technical perspective.” However, he also said the economy would continue
to seem soft, particularly where the job market is concerned. In fact, the
unemployment rate may still pass the previous post-World War II high of
10.8 percent before it starts to move decisively down toward 5 percent.
In real estate, we’ve certainly seen some positive developments during the
past few months, such as rising home prices and an unprecedented streak in
pending-home-sales growth. But as homes become more of a financial burden
for their owners, a new wave of rate resets looms, and the commercial
market continues to flounder, a palpable and justified sense of unease
remains.
All of this is to say that a recessionary state of mind among consumers
could linger well into a recovery that’s already tenuous for many reasons.
At root, any mental recession is driven by insecurity about personal
finances. Until most people in this country feel like they have good job
security, manageable expenses and debt, and safe and stable assets, they
will not believe in any recovery, regardless of what research reports and
talking heads might say to the contrary.
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