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Housing – Wall Street’s Kryptonite

Only 'Super Ben' is keeping the market afloat in spite of a broken housing market


No rational person could think the housing market will somehow magically “repair itself” anytime in the near future. Today we’ll examine the current stagnation to see why economic growth will continue to stall — barring intervention by Federal Reserve Chairman Ben Bernanke — and look closely at the housing market as the catalyst for current and future market conditions.

In the United States, a broken housing sector must, by definition, mean a significantly underperforming economy — and that, in turn, will hit corporate profits before year-end.

Of the jobs created between 2002 and 2007, 40% were linked to residential construction. And current homebuilding is off its peak by roughly 80%.

Consider that:

  • Without a rebound in homebuilding, there can be no significant rebound in employment.
  • Without a rebound in employment, there can be no meaningful rebound in consumer spending.
  • And as the government’s stimulus spending winds down, and the Fed’s liquidity spigot closes during the coming months, the economy will stall again.

No Light at the End of the Driveway

The Great Market Crash of 2008 and the Great Recession that followed were brought on by the Great Housing Depression — and it’s far from over. Housing is critical to the economy, consumer spending, corporate profits and the market. Here are some statistics:

Housing starts created up to 40% of the new jobs between 2002 and 2007. These jobs were particularly tied to residential construction.

Many of these jobs employed people with lower-level skills who were displaced from the lower-end jobs that have been steadily going overseas to factories in China, Vietnam and elsewhere. For example, a drywall hanger doesn’t just upgrade his or her occupation to the more readily available skilled jobs. With housing starts down more than 80%, these people are unemployed or underemployed.

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