Last time we discussed how deflation and inflation are possibly on the horizon, and how the global economy can impact the health of the U.S. economy. What are some key areas to watch for that provide signs of a recovering economy?
There are over 6 million homes that are currently vacant or in inventory, which is a glut on the market. Housing appreciation is part of what spurred the consumer economy, particularly over the past decade through the wealth effect. Every time a home increases a dollar in appreciated value, the consumer spends 4-9¢ more, on average.
Housing starts have decreased from 2.3 million at the peak to 550,000 in December. Directly and indirectly, the housing sector represents one in six jobs in the U.S. Expect to see continued devaluation of high-end homes (i.e. McMansions and Ken and Barbie Doll houses). Do not be surprised if this recession spurs a new trend in housing, the “Dick and Jane home,” targeted toward the younger generation and minorities. These homes will contain less square footage, be more energy efficient, and require minimal maintenance. They will be affordable for singles as well as couples.
Lower interest rates and other government incentives will be designed to jump start the housing sector; however, job uncertainty and continued loss of confidence in the economy will curtail a recovery in this area. Home values in California, Arizona, Nevada, Florida, Ohio, and Michigan, and recreational second homes will continue to struggle to recover compared to those in the Midwest.
Home foreclosures on second- and third-home investments will present some real deals; however, keep in mind some of the larger homes, while a steal, come with high real estate taxes and maintenance costs.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullyl[email protected].