Six quarters into the U.S. economic recovery, the nation remains on life support but is expected to start breathing on its own in 2011. Considering that the National Bureau of Economic Research declared the “Great Recession” officially ended in the second quarter of 2009, the subsequent upswing has not been as hardy or as pronounced as is typical for recoveries following deep recessions, from a historical perspective.
“We need more than the slow, weak, slogging recovery we’ve had so far,” said economist James L. Doti, president of Chapman University in Orange, Calif., during the 33rd annual economic forecast conference presented by the school’s A. Gary Anderson Center for Economic Research.
To the point, Doti focused on jobs — particularly in the construction industry — and the housing market as the key factors to getting the economy back on its feet again. With an estimated 7 million jobs lost during the recession, he worries that the number of jobs created so far in the recovery pales in comparison to past recoveries and at this rate it could take 10 years to recoup all the jobs lost.
“The scary thing is, what if they decide not to go back to work? It’s a dead weight loss to the economy,” Doti noted.
As the Chapman report explains, while some industries have begun to recover, residential construction employment is still mired in the recession, having dropped another 10 percent during the six quarters of the recovery.
In a Wall Street Journal article appearing Sept. 10, 2010, co-authors Steven Gjerstad, a Presidential Fellow at Chapman, and Vernon Smith, co-winner of the Nobel Prize in Economics in 2002, and a Professor of Economics at Chapman, explain the key factors involved.
“In the Great Depression and in every recession since, residential construction has recovered before every other sector and its recovery has been far larger in percentage terms than in any other major sector,” the authors explained. “This is the slowest rebound in residential construction in any sustained recovery from a post-war recession. No policy will change this situation: the housing market is saturated with foreclosed homes. This is a fact that needs to be confronted: we are almost surely in for a long slog.”
Although the Chapman forecasters are calling for 1.7 million new jobs to be created in 2011 — enough to drop the nation’s unemployment rate by about 1 percent to 8.6 percent — the recovery is projected to remain mild next year.
High housing affordability and low mortgage rates won’t be enough, as housing starts are forecast to increase only 7.2 percent for the year, with unemployment and foreclosures stifling the drive to build more new homes.
“With the rate of unemployment near 10 percent, consumers have good reason to fear for their future economic prospects,” the Chapman report explains. “The current mortgage and foreclosure mess is also causing homebuyers to delay their purchasing decisions. On top of all that, there is a surfeit of empty dwellings both for sale and for rent.”
While housing prices turned barely positive in 2010, the Chapman forecast for next year calls for a larger upswing — although only 3.3 percent — in home prices due to continued consumer anxiety over the mortgage/foreclosure crisis and the oversupply of 1.6 million vacant units in the nation’s housing inventory.
Historically, Chapman forecasts have proven to be quite accurate in their yearly prognostications, given that certain unforeseen economic events can occur during the year that can cause sudden unexpected changes in direction.
If the oversupply of vacant homes does take years to work its way through the system as the Chapman forecasters expect, home affordability remains high and mortgage rates stay near their historic lows, 2011 may be the year for real estate investors and potential homebuyers to dive in and make those purchases before the economic recovery takes off full steam. RealtyTrac, the nation’s online foreclosure marketplace, helps you stay on top of current market trends.
Read more about the Chapman forecast for the U.S. and California. Let us know what you think about the prospects of purchasing distressed properties next year.