U.S. Home Sales Point to Economic Recovery

by John M. Curtis
(310) 204-8700

Copyright Sept 19, 2012
All Rights Reserved.                                         

               Throwing a monkey wrench into GOP presidential nominee former Massachusetts Gov. Mitt Romney’s campaign, the National Association of Realtors reported today that seasonally adjusted existing home sales rose 7.8%.  Romney and his VP Rep. Paul Ryan (R-Wis.) have been busy convincing voters that President Barack Obama has botched the U.S. economy.  NAR reported that existing home sales, a key barometer of economic recovery, would top the seasonally adjusted rate of 4.82 million units, the highest level since 2010.  Despite Romney and Ryan’s narrative, the Commerce Department also reported that new home construction spending rose by 2.3% to 750,000 annual units, also showing solid economic growth.  “The U.S. housing recovery is for real,” said Sal Guatieri, an economist at Los Angeles-based BMO Capital Markets, promising more good things to come.

            Romney and Ryan don’t like any good economic news because it upends their sales-job to voters:  We can do better than Obama.  Both ignore Labor and Commerce Department data that show steady economic progress as measured by a stable rise in employment since March 2010.  Romney promises to add 12 million new private sector jobs by the end of his first term but won’t say how he’s going to do it.  Mitt’s chief strategist Stuart Stevens urges the governor to be deliberately vague to voters.  So far Romney only recites the old, discredited Supply Side bromide that cutting taxes leads to jobs growth and a booming economy.  With tax rates already at historic lows and Mitt and Paul subscribing to GOP party boss Grover Norquist’s “No Tax Pledge,” there’s no room to cut taxes.  Romney’s hinted many times that he’d like to shrink the size of the federal government.

            Shrinking the federal government would inevitably involve reducing the size of the workforce, namely, a federal hiring freeze, early retirements or outright layoffs.  Unable to raise taxes, Romney and Ryan can only generate more tax dollars by increasing employment.  Judging by the latest news from the NAR and Commerce Dept., the housing and homebuilding sector stand to add more jobs.  That improvement has nothing to do with cutting taxes in high-income brackets.  Mitt and Paul don’t like to acknowledge how well Wall Street has done since Barack took office.  Rising from 8,000 Jan. 20, 2009 to today’s close at 13,577, markets have risen over 79% since Inauguration Day.  As Wall Street rises, publicly-traded companies have more cash with which to hire more part and full-time workers.  Today’s positive real estate data prove that more employment has fueled construction and home sales.

            Romney and Ryan must convince voters to ignore hard economic data and take their word that the economy is worse off than when Barack took office.  “Great affordability, pent-up demand and strong investor interest in the rental units are driving the markets,” said Guatieri, seeing happy days ahead for real estate.  Federal Reserve Board Chairman Ben S. Bernanke has helped spur the real estate market with his latest round of bond-buying AKA quantitative easing or QE3.  When the real estate markets improve, the consumer economy benefits.  With about two-thirds of U.S. Gross Domestic Product based on consumer spending, it’s greatly helped by an improving real estate market.  When the real estate market collapsed in 2007-08, it dragged down the banking industry and the nation’s GDP.  Today’s report is welcomed news for Obama less than seven weeks before voters go the polls. 

              While the stock market is the beginning indicator of economic recovery, the real estate market helps cement the long-term growth.  Because the real estate market has been in decline since 2007-08, economic recovery has been slowed down.  With today’s good real estate news, economic recovery should move forward.  But if the stock market crashes next year, it could hamper the real estate market.  For full economic recovery, the market should move about 5.5 million units a year.  Today’s 4.82 million still lags behind but heads in the right direction.  Overly strict lending standards have hampered the housing market and economic recovery. Slipping from 34% last year, only 31% of first-time buyers qualify for today’s mortgages   Healthy economic recoveries have about  40% of first-time homebuyers qualifying for new mortgages, requiring more liberal lending standards.

                NAR data show that the pace of real estate sales has picked up with properties taking an average of 70 days to sell, improving over last year’s 92 days.  While prices have increased 9.5% since 2011, that price jump is attributed to less short-sales and foreclosures on the market.  Fed Chairman Bernanke can only do so much to push down interest rates.  It’s up to government agencies like Fannie Mae and Freddie Mac to develop more reasonable borrowing standards.  When the housing market crashed in 2007-08, the government blamed it on bad sub-prime mortgages.  Wall Street, especially insurance companies like AIG and investment banks like Goldman Sachs, failed to take responsibility for risky derivative trading that left banks broke.  Now that the market’s had time to digest what went wrong, it’s time to adjust lending practices to let more qualified borrowers get in the market.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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