Good Morning Middle America. I promised more predictions, so here we go.
As I watch even the most optimistic economists finally get around to having to admit that the U.S. is in recession, I listen closely to their excuses for being “so wrong for so long.”
After all, being wrong about something as serious as our floundering economy can’t simply be explained away by saying, “Hey, I’m an idiot.” Oh no, it’s the oil price that threw them. How could anyone have ever predicted that oil would go sky high? Well sure, they could have read a book on the subject sometime during the past 50 years. Or they could have reasoned the using 87,000,000 barrels of a finite resource daily could come with some problems,…no they couldn’t.
Remember when Alan “Cash” Greenspan and “Bronco” Ben Bernanke both said that housing would make a soft landing? That reminds me of the elderly lady who was exiting the plane after a terribly hard landing. When she passed the Captain who was sheepishly saying goodbye to everyone, she said, “Did we land or were we shot down?”
Housing was shot down. And, for the distant future, it will stay down. Here’s the problem. The price of housing went up like a rocket. Why? America needed an economy and housing was it. A person who had worked at McDonalds for two weeks could get a house on the buy now and pay later plan.
What goes up must come down, and housing made a spectacular decent. Ya see, residential housing is an impossible basis for a sustainable industry. Housing represents shelter and nothing more. I wrote an entire chapter in my book on this subject and predicted the fall of housing more than a year before it occurred.
There is a huge difference between a house, a home, and an investment. If a person thinks that a house represents a true investment, they should stay home and watch the money roll in. Some of those ditzy economists who insisted that due to rising home equities, Americans weren’t really experiencing negative savings over the past few years, have foreclosure signs in their yards also. In this case, it wasn’t oil at fault, it was the bank. Sure it was.
Some types of housing will never recover as reality creeps into even an economist’s life. Large, energy sucking, tax draining, maintenance monster homes will die a slow death along with their foolish owners or their foolish lenders in states that have non-recourse laws. Non recourse means that the lender can only go after the home and not any other assets that the borrower may have. If you wonder why the banks are writing off Billions, it is often due to non-recourse loans where the borrower had nothing down and nothing to lose.
Housing will have a second downfall. Once the inventory glut of current non-sold homes is liquidated (about 24 months average), the inflation factor will in the mean time have driven building costs through the roof. So here is the scenario. Lenders will remain leery of loose lending practices and actually have the audacity of requiring a down payment. How ridiculous, the next thing will be requiring proof that the borrower can actually pay them back.
In the mean time our built-in inflation will drive everyday living costs well beyond what we are experiencing today, making saving nearly impossible for the average person. Wages will not rise accordingly. Real purchasing power will continue to decline as an excess labor pool vies for fewer good paying jobs.
Government (seeking re-election to avoid gainful employment) rather than embracing the real issues, will continue to attempt to turn the tides by using bales of tax money to build weak levies against the inevitable rising costs that are built into our economic system of exponential growth. Residential housing in the mean time will become more and more unaffordable to the point that the average American will not have the means to purchase a home.
So there you have my predictions for residential housing over the distant future. If you haven’t done so, read the free chapter of my book by clicking the “book” button at the top of my home page. Keep in mind that the housing problem had not occurred when I wrote the book.