Recession Almost Over?

By
Real Estate Broker/Owner

That is the question posed by CNBC's Senior Features Editor Albert Bozzo.  The headline of his report is, "US Economy Could Recover Much Sooner Than Expected".

His rationale is, "Among the reasons for the new optimism: a significant easing of the credit crunch, improvement in consumer spending, a potential bottom in housing, a less-grim jobs picture and expectations that the government's massive stimulus spending could start boosting economic growth sooner than later."

Really?

Let's take it point by point.

1.)  The "significant" easing of the credit crunch:  I don't think that anybody would disagree that there is a correlation between the access to credit and the amount of credit losses.  Banks won't continue to extend new credit in large volume when their credit losses continue to escalate.  In terms of credit losses, by all indications, defaults on credit cards and foreclosures are actually escalating.  As recently as last week, former Bank of America CEO was quoted as saying, "We continue to face extremely difficult challenges, primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment." 

2.)  Increases in consumer spending:  Yes, consumer spending rose 2.2% this quarter when compared to the fourth quarter of 2008.  But when you consider that many economists are projecting double digit unemployment, I don't think that consumer spending will continue to be able to drive this economy as it has in the past.  In fact, in March, consumer spending actually dipped by 0.2% according to the Commerce Department.

3.)  The potential bottom in housing:  A bottom in home sales, maybe.  A bottom in home values, not even close.  And the reason is that while home sales may have hit a bottom (which is contingent upon unemployment not rising) there are still too many homes for sale and foreclosures coming to the market which will continue to put downward pressure on home values for the foreseeable future.  Home values are driven by supply and demand and we still have a ways to go until we can remove the excess supply.  In fact, one of the most glaring red flags about the current month's supply of housing is that it has only declined by 2% from last year, this despite the broad based foreclosure moratoriums that have mitigated this housing disaster up until now.

4.)  A less-grim jobs picture:  Here is the thing, I like to look at the preponderance of evidence.  One or two moderate weeks of job news does not point to an economic recovery.  What I see is that the month over month changes in terms of monthly job losses have only shown an escalation.

5.)  The government's massive stimulus spending:  By most indications the stimulus bill is back loaded.  What this means is that even if it has any meaningful impact on the economy, it won't be until 2010 or 2011.  It certainly is not the basis for a 2009 economic recovery.

 

 

 

Comments (22)

Amanda Wilson
EWM International Realtors, Inc. - Fort Lauderdale, FL
Real Estate Advisor

Lisa--Mark--we need some positive news! 

May 01, 2009 07:50 AM
Mark MacKenzie
Phoenix, AZ

Lisa:  The news has definitely shifted the past month.  As has the stock market.  I think all of it is pre-mature. :)

Amanda:  There is a lot of it out there now.  But I don;t agree with any of it. :)

May 01, 2009 07:52 AM
Barb & Sal Dragotta
Macomb, MI
Macomb County Michigan

Mark--being here in Michigan with the prevalent demise of the Big 3 due to many factors- one being the interference of Washington, the Congress & oh, yes, the retirees Health Program[ as in the unions' 55% ownership of Chrysler]-we are seeing 14+% unemployment. The hue & cry is ..."the national rate is reaching double digits...". Housing in our area of MI, is active, but many if not most are leases, SS, or Foreclosures.  That is just wrong, but it is the reality; larger Building Co. are stepping up & taking over some Subs that have shut down due to financial reasons. New Home Building here has / had come to a complete halt in the last 2-3 years, so anything that is a up-tick is a very good thing for us. Many financial splinters or ripples have resulted in shut down of  Supplier Co., Small Businesses, Restaurants,  & other Consumer stores.    
One cannot & further more, should not try to sugar coat the reality--if we are not personally responsible for our decisions, we will flounder or sink in everything that we do. 
The Positive that I see, is the return to that belief & the subsequent acts being taken by regular folks, to set their goals, secure their financial footing, educate themselves & their families on the importance of savings, investments & controlled purchasing. Family, Religious beliefs, Personal stratgies to improve & Laughter will guide those who find success; & lots of Clients, Listings, Sales, & Closings aren't 'chump change' either. Thanks for posting the facts.

Barb & Sal        

May 01, 2009 08:35 AM
Mark MacKenzie
Phoenix, AZ

Barb & Sal:  Thanks for your post, I am sorry to hear about what your community is going through.  I try my best to sift through the muck of data out there and report on what is really taking place.

May 01, 2009 09:16 AM
Kathy Toth
Ann Arbor Market Center Keller Williams - Ann Arbor, MI
Ann Arbor Real Estate Experts - Kathy Toth Team

Mark, I agree that it's difficult to find real hard facts to give us some optimism; however, what I do see is pent-up demand that's just waiting for some of these heavy issues (like Chrysler and GM) to reach resolution so people can start living their lives again minus the doom and gloom.

May 01, 2009 10:28 AM
Dave Sulvetta
Dave Sulvetta, eXp Connection, Gloucester County Realtor - Gloucester Twp, NJ
Realtor

mark-

Yep, i have to agree... let the media make attempts at being positive. ATTITUDE is key and if we keep our bleak attitude... we all will certainly continue to fail....sorry

May 01, 2009 02:07 PM
Lee Ali
Las Americas Real Estate - Fairfield, CT

I just saw a piece on Good Morning America that this guy is picking up Inland Empire, California houses at at $55,000. The same houses were sold at around $350,000 a couple of years ago. He is trying to move the same houses, after repair for $165,000.

He can buy these houses for buy-rent, but he will not be able to move a whole lot of them to non-FHA buyers.

Credit-induced boom/bust CANNOT be corrected by cash-based purchases of real estate.

Seller-Financing and Private Money needs to fill the credit gap.

May 01, 2009 02:49 PM
Kristy Baker
Century 21 Act III Realty - Johnson City, TN

Mark,

I have to agree with Dave. Attitude is key and in this country the general public believes whatever they hear in the news so any positive news even if it is premature will hopefully boost consumer confidence and get the country out of this mess. Also not all areas of the country have been hit hard and may actually be improving. In my area for example, we never experienced the housing bubble and bust like in Florida and other areas of the country so we are not as affected by the recession. And the good news is that the real estate market here seems to be improving. Sellers here are not upside down and buyers are out there buying so there is an upswing. It just depends on where you live.  

May 02, 2009 12:14 AM
Mark MacKenzie
Phoenix, AZ

Kathy:  I see where you are coming from, especially living in Michigan, that is a big cloud hanging over your community.

Dave:  Thanks for your comment.  My readers and my clients expect more from me than just a positive attitude when they are buying a home or investing in real estate.  They also want the unvarnished truth.  I try my best to give it to them.  They don't need another real estate agent saying, "it's a great time to buy" like we have all been saying for the past decade.

Lee:  It's good to hear from you.  Well said.  We do need more capital in the real estate market.

Kristy:  Indeed, all real estate is local.  But the latest report from the NAR for metros showed that 84% of all metros lost value year over year during the 4th quarter of 2008.  The ones that didn't are not major metros.  Most data with the exception of the past month shows that home price losses are actually accelerating.  Foreclosures are accelerating.  Job losses have been accelerating over the past couple of months.

I disagree that all we need is strong consumer confidence.  That is how we got into this mess in the first place.  People began to believe that real estate always went up and as a result a lot of people got hurt.  I think we all have a responsibility to temper our enthusiasm to make a sale with the macro economic outlook.  I want my clients going in with their eyes wide open.  As long as they understand the risks, I have done my job.   

 

May 02, 2009 01:09 AM
Steve Graham
Inactive - Atlanta, GA

Mark - you are not one to tickle anyone's ears; it does seem that the conomy will continue to be on rocky ground. The only real progress in the economy may be from Green Technology. 

May 02, 2009 01:16 AM
Mark MacKenzie
Phoenix, AZ

Steve:  I don't mind differing opinions, in fact I appreciate being debated.  But I also want to hear some counter points supported with data.  I would tend to agree with your point about green technology.  It would conserve natural resources, it is economic, and it would create new  and sustainable jobs.  We need a dramatic shift in our economy and I do believe green technology could be it.

May 02, 2009 01:23 AM
Tyler Wood
RE/MAX Big Bear - Big Bear Lake, CA
Big Bear Real Estate

While some positive is better than all negative, positive just for the sake of positive can be delusional. 

I believe that jobs and foreclosures are going to be the key to this market getting better.  All real estate is local, and in our market, the foreclosure numbers are growing, not going down.  Until they start to tail off, we cannot be at the bottom IMO.  Generally speaking, when sales start to pick up, prices will follow at some point.  I just think it is a ways off before that happens in this market, given all the negatives sitll out there.

May 02, 2009 05:08 AM
Carol Simonson
ReMax - Westlake Village, CA

And then...there is a bit of a reality check for us, breaking news VIDEO in California as to exactly what is happening in some parts of our state regarding new construction being torn down, demolished by...BANKS!  You know...BANKS...our good buddies with the Billion Dollar Bailout...courtesy of folks like you and me. 

 

You can read more and view the actual destruction videos on my blog...which is kind of sad...okay, extremely disheartening and tragic...but I didn't want to blow anything out of proportion or be unnecessarily negative.  I sincerely want to see the positive light at the end of this long, long tunnel!

 

You can view the video in living color and in action below...I hope things get better for the poor banks soon!

 

 

Carol...

Click below link to view Bank Video!

www.RainDroplettes.com

May 02, 2009 07:19 AM
Mark MacKenzie
Phoenix, AZ

Tyler:  I agree with you completely.  It does indeed come back to jobs and foreclosures.  Until these numbers begin to moderate, it is going to be a while until the economy and housing market can get traction.

May 02, 2009 07:27 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I try not to predict too much anymore.  I always tell my clients if I could predict stuff I'd have bought Microsoft Stock 25 years ago and not be working now. 

The biggest problem with economy is credit.  It is important to have an increasing amount of currency to cover the growth of the economy and a little inflation is healthy (1-2% say) or people would just stuff money into mattresses.  The problem is the only way to put money into circulation is by credit, rather than just print it.  We should have credit for big ticket durable goods (houses, cars, etc) and some business need it for the float, but we have gone way beyond that.

Homes turned into giant ATM machines and some people living off credit cards like there is no tomorrow.  No one needs a giant TV enough they should charge it.  I hope credit is tightened on credit cards and general consumer credit.  Then the credit will be there for home buyers etc. . .

I do not have much of a problem with us just printing money as we are doing now.  I have a problems with the increased government spending.  We should cut taxes, cut them steep and fast.  Let people keep there money and they can by what they need without credit cards.  People will work and the economy will grow.

May 02, 2009 07:59 AM
Kelsey Barklow
Hurd Realty - Johnson City, TN
423/948-9154

Good post, Mark. I like your commentary/observations on how wonderful the economy will be in three months! Ha!

May 03, 2009 01:12 PM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

The economists name was 'Bozo'?  In the Chicago Area that is a famous clown that used to entertain the kids every day during lunch time in the 60-70's.  How nice??  Same clown, just a slightly different spelling I think.

May 03, 2009 01:51 PM
Sukhdev Farmah
Triangle Lending Group - Morrisville, NC

Mark this time we really need some postive news.peoples who want invest are very scared due to negtaive news.But if consumer spending increase it did not mean ecnomy improved it s always increase in feb to middle of march the reason is people geting there Tax refunds. In fact  ecnomy will not improve at least in 2009

May 03, 2009 02:37 PM
Carrie Sampron
Home Smart Realty Group - Highlands Ranch, CO
ABR SFR & Kathy Sampron (303) 931-3629 Highlands R

Mark:  We've been rading more good news, perhaps this will help with the many fence sitters still out there.

May 05, 2009 09:39 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Noot sure I agree with you.  I think we have a long way to go yet. 

Patricia Aulson/Portsmouth NH Real Estate

May 10, 2009 11:19 AM