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Housing boost needed for recovery

A home is offered for sale in the West Town community in Chicago, Ill.

TEXT OF STORY

Kai Ryssdal: The Commerce Department reported on May sales for new homes this morning. It's a figure they've been keeping track of since 1963. I mention that date because in all the years since then, we've never seen a lower annualized new home sales number. That's mostly because people stopped shopping for homes after the government stopped offering an $8,000 tax credit to do so. Now, the housing market got us into this recession.

And as Marketplace's Jeremy Hobson reports from New York, we're going to need it to help get us out.


Jeremy Hobson: Plenty of market watchers here in New York were floored by this morning's news.

Dan Greenhaus is one of them. He's chief economic strategist at Miller Tabac. He says no less than our entire economic recovery is at stake.

Dan Greenhaus: Without that boost from housing, that boost from confidence and that boost from jobs, it's very difficult to make the case that we're going to have a broad-based, V-shaped recovery until the housing market fully turns and that may not be for several quarters.

Greenhaus says the reason the housing market matters has less to do with construction jobs and interest rates, and more to do with consumer sentiment.

Greenhaus: A house is someone's largest investment, and it's very hard to argue from a sentiment standpoint that I feel comfortable going to Best Buy to buy a new TV or J. Crew to get a new whatever J. Crew sells, if my single largest investment, that is my house, is going down in value every month.

So could a collapse in the housing recovery send us into a double-dip recession? I asked Mark Zandi, chief economist for Moody's Analytics.

Mark Zandi: If the housing market starts moving downward again, if we start seeing large consistent price declines, that would be the basis for a double-dip recession. In fact, I think the threat from housing is probably more serious than the threat that's coming from the European debt crisis.

But Zandi says this morning's news shouldn't be too surprising, given the expiration of that tax credit. He expects only modest declines in home prices going forward. And that, he says, should help us avoid a double-dip recession.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.
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If property is undervalued, then we indeed need the "housing market" to "recover." But if property is still overvalued, we need the market to sink to its true value; anything else is like trying to rebuild before the storm has passed.

Once again, someone has the cart before the horse. Falling housing prices are a SYMPTOM, not a CAUSE. Yes, housing is important but it's not the beginning. The central cause of the Great Recession is jobs: unemployed and underemployed people who could no longer afford their house. Decades of trade deficits have exported our jobs and standard of living. Borrowing only posponed the painful truth.

Love Randall's comments. Zandi's been full of crap since the beginning of this. Every time he is interviewed he has tried to downplay the situation. Marketplace needs to take a realistic look at the housing market. Let's hear from someone that isn't trying to find the bright side (or at least trying to soften the edges) when there really isn't a bright side to be found yet.

Sure the housing market must play a role in the recovery, but I think its role needs to be tied into the energy sector. We can't expect suburban sprawl to come back they way it did. That is simply more of the same. We need to accept that spreading out has hurt our economy as well. Governor's Rendell and Schwartzenegger and Mayor Bloomberg are running around the country advicing people that we can't afford to maintain the infrastructure that we have - let alone support more roads, schools, water and sewer lines. We must get a greater ROI from existing brown feild sites like Detroit, West Chicago, North Philadelphia, etc.
I'm looking for the existing home sales market to turn and the energy sector to get us off of oil. A billion dollars a day to the mid-east is not a good thing. All this ties together - and I can't accept a conversation about the housing market, without linking it to the energy sector any more - it simply makes no sence.

Come on marketplace! Quit trying to pump housing. The jig is up, you're naked. Where do you find these economists? They are spin doctors, most of which who buy into the Keynesianism fraud. Are you forced to hide theories of Austrian economists, and traditional systems based on logic and sound money? Followers of these schools of thought knew what would happen when Greenspan lowered rates in 2001.

Plenty of market watchers were floored by this news? No, this was expected otherwise the market would of crashed. It was only 'unexpected' for all those economists making the rounds trying to talk main street into taking on more debt buying property at bloated prices. Zandi expects only modest declines going forward? What does he think will happen when broke governments raise taxes and lay off workers? What does he think will happen when interest rates rise? Is this so called expert trying to claim this will have no effect? The bubble will be popped once interest rates rise to their historical average of 10%.

Normally I love the show but not this phony slant. As mentioned housing needs to stabalize and get back on an upward trend for a healthy economy. For that to happen prices need to fall much further from here. The banks and builders are holding tons of houses playing games with fake sales, government is throwing trillions through the back door to keep it propped up, the media all out trying to talk prices up. Why are you delaying the inevible and the real road to recovery? We can only have a healthy economy if housing is affordable. If most income goes to a mortgage people do not have free capital to grow the economy. I also fear a double dip because our monetary tyrant at the Fed will have his excuse to hyperinflate the dollar.

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