03.25.2011 2

The Myth of the Obama Economic Recovery

By Rick Manning – The myth of the Obama recovery took another hit when new single family home sales for the month of February dropped precipitously by 16.9 percent, reaching a seasonally adjusted 250,000 unit annual rate.  The lowest rate for the sale of single family homes since 1963 when records first began to be kept.

Construction has traditionally been a pretty effective bellwether of coming economic activity with the Beginner’s Guide to Economic Indicators stating, “New construction including new home construction is another procyclical leading indicator which is watched closely by investors. A slowdown in the housing market during a boom often indicates that a recession is coming, whereas a rise in the new housing market during a recession usually means that there are better times ahead.”

A reasonable person might ask, if we are supposedly coming out of a recession, why would a leading economic indicator show a drop to an all-time recorded low?  Shouldn’t the economy be accelerating and more people be purchasing new homes rather than significantly fewer?

The answer lies in the massive foreclosure market.  The National Association of Realtors reports that the price of new homes is running about 45 percent higher than the average price of existing homes.

As prudent home buyers are looking for bargain basement deals in a market flooded with distressed sales and foreclosures, construction workers are not being hired, and the persistently high unemployment rate amongst these workers threatens to get even worse than the staggering 21.8 percent that it currently is measured at.

Additionally, home prices continue to drop as foreclosures and desperate sellers continue to reduce the value of all the homes in their neighborhoods.  Since the peak of the housing bubble in 2006, the average home value has dropped over 22 percent.  If you include distressed or foreclosed houses into this equation, the values have dropped by more than 30 percent with almost half of the home sales since 2006 in the distressed home category.

Is it any wonder that people don’t believe it when Washington, DC politicians proclaim the “recession over,” when their biggest single investment, their home, continues to decline in value?

And there is little expectation that home values will go up again anytime soon.  CNNMoney reports that Yale economist and co-founder of the S&P/Case-Shiller home price indexes predicts that, “There’s a substantial risk of home prices falling another 15 percent, 20 percent or 25 percent.”

To give credence to this dire prediction, a home vacancy report in Florida shows that nearly 20 percent of the homes in the Sunshine State are actually vacant.  That’s right, almost one in five homes don’t have anyone living in them.

It doesn’t take a degree in economics to realize that prices of homes have to continue declining until the demand for the purchase of a home equals the supply of homes available to purchase, and the only equalizer is price.

The political impact of the continuing decline in home prices will likely be felt by President Obama as his increasingly desperate attempts to convince Americans about the “improving” economy, are contradicted by their own personal experiences.

The independent Gallup polling company reports that 20 percent of American workers are either unemployed or underemployed, so every person knows at least one person who is struggling in this Obama economy.

At the same time, the annual federal deficit has risen by a factor of ten since the end of 2007 to a staggering $1.65 trillion projected for this year alone.  This deficit is so alarming that recently Dallas Federal Reserve Bank President Richard Fisher said, “If we continue down on the path on which the fiscal authorities put us, we [the United States of America] will become insolvent, the question is when.”

Not exactly one of Obama’s economic message points that all is well with the economy, even if you don’t realize it.

And that is not even mentioning the political and economic impacts of rising gasoline and food prices.

Ultimately, between home prices collapsing, high underemployment and a strangling budget deficit, Obama better hope that James Carville’s axiom from the 1992 election is no longer valid.  Because if it is in fact, “the economy, stupid,” Obama will be joining the ranks of the unemployed come January 22, 2013.

At least he should be able to get a good deal on a new house.

Rick Manning is the Communications Director of Americans for Limited Government

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