Economy May Have to Fix Itself Without Housing’s Help
- May 19, 2008
Washington, D.C.–Although many homeowners hope the housing decline that’s been gripping the market for almost two years is almost over, some economists fear it may deepen.The U.S. housing decline has helped freeze credit markets and cause hundreds of thousands of foreclosures–but to avoid a full recession, the economy is going to have to recover without the housing market’s help, according to the Los Angeles Times.”The slowdown we’ve seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures,” Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said Friday in a speech to the Brookings Institution in Washington, D.C. “We need to find better ways to help struggling homeowners.”The Commerce Department said Friday that home construction increased 8.2 percent last month. It was the largest gain in two years–but was due mostly to apartment construction, an indication that homeownership is becoming more difficult to attain. Single-family home starts fell. On Friday, Treasury Secretary Henry M. Paulson Jr. called housing “the biggest risk to our economy” and predicted the slump could last into 2009.”We didn’t get here quickly. There were years of excesses,” Paulson said. “And this won’t be resolved quickly.”Housing may have shaved 1 percentage point off of the U.S. gross domestic product in the last year, economists say. However, there is one advantage to the rapidly declining home prices: The quick pace at which prices are falling could make the economic slowdown shorter.”Because the prices are going down so fast, we’ll be hitting the stabilization point sooner,” Lawrence Yun, chief economist at the National Association of Realtors told the Times.