We Knew...We Knew: June 2006 Report

August 18, 2008
Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

We Knew…June 29, 2006
That Hissing Sound
Robert Reich, pointing to leaks in the housing bubble, gives the Fed some advice:
Market Meltdown: Say goodbye to the housing bubble, by Robert B. Reich, American Prospect: ...America’s housing bubble has not exactly burst. It’s just sprung a leak the size of your average mortgage banker. What’s clear is the boom is over. All across America, backlogs of unsold homes are long. Price increases are slowing. In some markets, home prices are actually dropping...
It’s better that bubbles leak than burst. Gradual declines are always easier to manage than explosions. But the housing boom has been so large and important to the American economy over the past five years that even this slow leak will cause severe headaches.
One will be experienced by millions of households that had turned their growing home values into piggy banks to finance their continued consumption. That easy route to cash is just about gone. The inevitable result will be less consumption, which will mean fewer jobs.
A more immediate problem will arise for all the people making, financing, and selling houses. Here we’re talking about a vast army of carpenters, plasterers, roofers, plumbers, electricians, mortgage bankers, home inspectors, real estate agents, architects, structural engineers and many more. According to Moddy’s Economy.com, housing-related employment has accounted for almost a quarter of the five million jobs that have appeared since 2003.
These jobs pay well even though most of them don’t require a college degree. That’s because they don’t have to compete in global commerce. Workers in Beijing or Calcutta can’t easily build houses in Phoenix or San Diego. ... But now with the housing boom over, many of these good jobs are over, too.
In other words, without the housing bubble, the American economy will lose a lot of its fizz. I don’t like bubbles, but from a jobs standpoint this recovery has needed all the fizz it can get. Median wages have gone nowhere. The ranks of the long-term unemployed have been unusually high. The percent of the labor force with jobs is lower than in 2000. Housing has been one of the few bright spots in the economy.
All of which brings us to Ben Bernanke and his gang at the Federal Reserve Board Open Market Committee. They’re determined to raise interest rates because they think the economy is too fizzy and still prone to inflation. I hope they listen carefully: The hissing sound they hear is air escaping the housing bubble. There’s less fizz in the economy than they think. Raise interest rates, and the Fed raises the likelihood the economy will deflate.
We'll know more soon when the Fed announces its rate hike decision from today's meeting.

That was in June 2006. We Knew.

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC