03
May
07

I can’t understand why the economy is doing so well!

That’s effectively the take by Kevin Drum over at the “Washington Monthly”, the “progressive must-read” of James Carville.

Borrowing a line from the AGW crowd, he says:

Well, look: anytime any aggregate growth figure [homebuilding] is low you can always point to its weakest component and say that things look a lot better if you just exclude it. A couple of years from now it will be something different: “Sure, there’s a slowdown in the IT sector, but it’s temporary and the rest of the economy is growing at a nice clip.” This kind of analysis leaves me pretty cold.

For years now people have been warning that the “housing bubble” is going to burst, and there’s plenty of indicators that show it’s happening. The first sign of trouble with the housing market is the damage to people with adjustable rate mortgages.

Hey, ARMs were great when the interest rates were in the 1’s, but now we’re creeping back up to normal, and there was plenty of time to Re-Fi into a fixed-rate adjustable, even locking one in at a low interest rate (although not as low as the ARM). And what we end up with is stupid people who’ve borrowed too much and are now feeling the pressure of an adjusted ARM.

As a result of interest rate increases, mortgages are harder to afford. I wish I had some career stability in the past 5 years to take advantage of buying a house, but I wasn’t in one place long enough to make a house purchase feasible. So I could get an ARM now and get a house, or I could do the smart thing and wait, save, and get a 30-year fixed rate. Or a 15-year fixed rate (but that would require the wife to agree to a smaller home, and that’s just not going to happen).

But now that other people are understanding long-term loans are just not the solid deal they once were, borrowers are scarce, and new home construction as well as existing home purchases are beginning to sag, and soon they’ll collapse under their own weight.

We’ll see a direct hit on the economy as companies fold. It’s called a correction, and it happens all the time. Wishing for doom and gloom, as Kevin does, and expecting the economy to self-destruct is perfectly aligned with Harry Reid and the defeatist plan for Iraq. Progressives just aren’t happy unless the US is suffering.

And Kevin is befuddled as the economy moves forward. The growth is good, not spectacular, and it’s steady, so the economy is strong. Unemployment is low (4.4% compared to 6.3% in June 2003). Kevin has to look at any “bad thing” and say “look, the economy is tanking!” And one day he’ll be right.

But the housing market’s bubble is bursting, and it’s going to impact the economy, but don’t expect it to force a major recession. It’ll be a correction, and most of us aren’t going to notice. Well, I will. With a collapsing seller’s market in real estate, it’ll be an ideal time for anyone to buy an existing home.

As an aside, I’m also doing this to test memorandum. I used to get links there, but evidently I kicked someone’s dog, so I’m never linked there any more. So, unless I get some memeorandum love, I’m going to kick it and its sidebar to the curve.

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My name is Doc. Welcome to my blog. If you're visiting from another blog, add me to your blogroll (and I'll happily reciprocate). I have a Ph.D. in Chemistry and live in Wisconsin. If you have any questions, feel free to email me. My email is docattheautopsy at gmail. (No linking to deflate the incredible spam monsters).

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