Re: Five Reasons for Economic Optimism

U.S. Home Values Continue Their Free Fall

I stumbled across an article in the March 16th issue of the TIME Magazine that brought up a couple of interesting points about the current economic situation in America. The author of the article, Justin Fox, talks about the good (or, at least, the fairly good) things that come out of any recession. Consequently, he came up with a list of four positive outcomes of the crisis.

  1. The stock market is no longer over-priced. Of course, as prices on stocks fall as a consequence of the general shrinking in “lung capacity” on Wall Street, the investor suddenly finds himself in a better position than, say, two years ago. Given that the promise of the recovery is realistic, the average capitalist could eventually earn a robust profit. The problem is guessing when the market is going to stop falling. Confidence is required for such dismissive action.

  2. The government is on the case. Here, the author merely points to the recent activity that followed the election of a new president. Of course, the worsening of the economy drastically stimulated this stirring, but Obama is to be given credit for much of the action on the matter.

  3. Consumers are adjusting to the new economic reality. This is both a good and a bad thing. Good because it is a reality-check for the (American) consumption machine. People begin realizing that the borrowed money will have to actually be repaid. On the dark side, this increase in savings hurts the economy (consumption being part of the Gross Domestic Product) as it drags the GDP along.

  4. Reinvention and change are what the U.S. is all about. This is a good point in general, not just in the economic sense. Theoretically, when something must be rebuilt anyway, people may as well fix what needed to be fixed for a long time (which, for lack of “inspiration,” or less likely – money – never got done). Remodeling a house to suit its residents’ needs better is much easier to do if the house in question had already gone through a fire: the structural walls are still there, but the rest can be refreshed on the way.

Falling Housing Prices - the Vicious CircleThe fifth point that I wanted to add to Fox’s list relates in a way to the first on the list. The prices on the housing market. Any time there is a recession, the housing market gets hit first (in this case, it was the housing market that was the root of all evil). This however may be beneficial to those people looking for a house. According to the Wall Street Journal, prices have been falling constantly since May of 2006. Now, when the prices are the same as they were in mid-2002, it is expected that they will continue to fall.

Is there a bullish scenario for house prices? Sure. If all the government spending to turn around the economy reignites inflation in a year or two—as some predict—house prices could begin climbing again. But if the current price deflation continues, look for house prices to keep dropping.

It is confidence that is needed get out of the crisis. From home-buyers, to investors, to consumers – all need to regain their confidence in a stable economy. This of course may only be attained in time. Meanwhile, we can continue watching the market for a better bargain.

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