A good housing market might lead to a new great recession: Here's why

It seems that far too few have learned anything from the Great Recession. History repeats itself yet again. Photo: Is a good housing market a good thing?

FLORIDA, May 2, 2013 — Two sectors of the economy seem to be in particularly good shape right now.

The first, of course, is the stock market, which is climbing to phenomenal highs. The second is the housing market. Although it has not yet returned to the pre-Great Recession-era, sales are up and new houses are being constructed at a speedy clip.

This should raise a few red flags.

The wealthy are the ones primarily benefitting from the stock craze. Middle and working class folks seldom have extra money to spend on risky investments, even if these might yield fantastic returns.  

Members of the working classes, however, were the lion’s share of house buyers over the last decade. After the recession came along, they were the hardest hit. Considering that wages have decreased along with job opportunities, thus breaking the chain of socioeconomic mobility, the upswing in real estate becomes almost unexplainable.

After all, wealthy people can’t be the only ones purchasing houses or having them built. While America, even during times of financial hardship, does have a plethora of millionaires and billionaires, they are far outnumbered by Average Jack and Janes.

Enter a new program from the Obama Administration.

Journalist John Bennett of WorldNetDaily writes that “the Obama administration now has launched a major push for banks to hand out mortgages to those with “weaker credit,” including some on public assistance.” Apparently, this claim was substantiated by former Fannie Mae executive Edward Pinto, who “confirmed to WND the government’s adoption of a strategy that requires banks to lend to less qualified borrowers or face discrimination complaints.”

Stan Leibowitz, a noted right-of-center economist, tells WND that the program is an “unnecessary risk being imposed on the economy for no gain except some political chits being generated by politicians for their own venal purposes”.  

Bennett remarks that “the worst problem with the administration’s approach could be that it fails to resolve a disturbing underlying issue: the large number of homeowners with negative equity – or homes on which they owe more than the value.”

According to libertarian economist and Nobel laureate Vernon Jones, who also spoke to WND, negative equity plagues 22 percent of house owners. He explains that “(t)his household condition means that their too-big-to-fail banks have similar balance sheet stress, and these twin problems are significant in explaining why the U.S. economy is stuck”.

Honestly, isn’t this the sort of thing that brought about the Great Recession in the first place? Easy money flowing into the hands of almost anyone who asks for it cannot be a good thing. The idea that the government is trying to artificially improve the housing market with the same tactics used years ago by a bipartisan consensus of political vultures is almost too outlandish to believe. 

If this doesn’t prove that life is stranger than fiction, then I don’t know what will.

What I do know is that the economy cratered from its mid-2000s prime to a state of utter malaise in 2008 and beyond. Thinking about how far that fall was, one might wonder about where the economy would tumble to from here. If the root causes of the Great Recession are repeated while America is still trying to get its fiscal house in order, then what on Earth can be expected to happen?

Do we really want to follow in Greece’s footsteps?

While some surely do rejoice at the rebound of American real estate, I am not one of them. The rebound itself is nothing to fear; quite the opposite. The reasons for it, though, are as synthetic as they are unsustainable. The term “fool’s gold” could not be more accurate.

Better news in the housing market today might very well be the reason for an even greater recession tomorrow.


Far-left? Far-right? Get realRead more from “The Conscience of a Realist” by Joseph F. Cotto 


 


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Joseph Cotto

Joseph F. Cotto is a social journalist by trade and student of history by lifestyle choice. He hails from central Florida, writing about political, economic, and social issues of the day. In the past, he was a contributor to Blogcritics Magazine, among other publications. He is currently at work on a book about American society.

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