National Economic Outlook - June 2014
Written By:
Ingo Winzer, President
Local Market Monitor
The
majority of Americans live in places where home prices - even if they have
increased lately - are still at least 10
percent lower than the peak they reached during the mid-2000s boom. These
include New York, Los Angeles, Chicago, Atlanta, Washington DC, Seattle,
Charlotte and Salt Lake City. Prices are higher only in San Francisco, Denver,
and pretty much all of Texas.
The
reason this is important is that large numbers of homeowners in those places
hold mortgages that are still under
water - they owe more than their home is worth - and therefore can't borrow
against any home equity and can't either sell their home or buy a new one. They
are essentially out of the real estate
market and also can't spend any money.
No wonder that home construction is still in a trough and that the economy is
just sputtering along.
The
latest GDP estimate for the fourth
quarter of 2013 shows that consumers increased spending at a modest 2 percent
annual rate but that investment in equipment, construction and inventories
dropped just as much, leaving GDP down one percent because exports fell. (The
government, as usual, made no contribution.)
Despite
the optimistic pronouncements, the job situation in May was much the same as it has been for
months, with jobs up 1.8 percent from last year. Jobs were up just 3 percent in
construction, 1 percent in manufacturing, 2 percent in retail, 3.5 percent in
business services, 3 percent at restaurants, and 1.5 percent in healthcare.
Note that low-wage jobs make up most of the increase. The unemployment rate is
still 6.3 percent.
