September 11, 2011

1,016 Days & Counting!


Originally Posted November 29, 2008

It is going to take at least 5-years to repair the damage done to the economy because of our excesses over the past 8-years. Too many homes were added to our housing supply because of easy credit granted to consumers who could not afford the home they were buying.

Now because foreclosures resulting from poor credit decisions, we have an excess supply of homes on the market that has, and will continue to, put downward pressure on home prices. This trend will last for at least 5-years. Further, it will take sometime before homes will be viewed as a good investment. Houses will be purchased more for the shelter that they provide as opposed to a means of increasing wealth. To compound the problem, the demand for housing is not going to get much help from the demographic trends over the next 20-years.

This has resulted in a significant drop of the net worth of households, causing households to adjust their spending habits downward. Because of the decline in household spending, retail sales will fall off significantly and will not recover for sometime. There will be store closings and consolidations causing retail rental rates and values of commercial real estate to decline.

The glamour of real estate as an investment is over or at least tarnished significantly for some time to come.The net worth of Americans has further eroded because of a 40% decline of the stock market over the past year and no one can be sure of when the fall will end. Retirement savers have lost $2-trillion over the last 16-months due to the stock market crash.

It is time for the government to institute public works projects to shore up our infrastructure, reduce or dependence on foreign oil and fossil fuel, improve our education system and to supply the jobs necessary to overcome our current economic problems. It is unfortunate that we ran huge federal deficits during “the good times” because now we have no choice but to resort to deficit spending to cure our problems and to make the necessary investment for our future. This is not being liberal or conservative; it is doing what is right.

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