Lawrence Yun is among the most respected economists on the national scene.  You may be interested in his current report.

?Climbing Out of Recession

By Lawrence Yun, Chief Economist, NAR Research

September has come again, and most folks are back from vacation. Kids are back in school. Traffic (in most locales) has returned to its usual nightmarish levels. Many of us are asking ourselves "where did the summer go?"

Well, summer is not the only thing that has ended. The world-wide economic recession is also essentially over. Led by countries such as Brazil, India, and, in particular, China, the economies of the world are digging themselves out of that recessionary ditch. Many other countries appear ready to emerge from the economic doldrums just as strongly. Poland, Chile, Mexico, Turkey, South Africa, and Vietnam could all re-emerge with stronger economies in 2010. Let's hope that as these and other countries travel the upward road to recovery their leaders and policymakers face up to global challenges and opportunities that stem from laying down the necessary institutional reforms that respect private property rights and the transfer of properties.

The U.S. economy, also, appears positioned to start that upward climb to recovery, and those improving foreign economies are also helping to pull the U.S. economy out of its recession as well. Healthier foreign economies mean increased exports from the U.S. Indeed, the net export picture in the U.S. has improved notably this year.

Another factor that will contribute to a reviving U.S. economy is the huge inventory restocking that needs to take place over the next several quarters. In the wake of the financial crisis in the fall of 2008 (and as part of the aftermath of the Lehman Brothers collapse), corporate credit was virtually nonexistent. And most companies kept their precious cash close - not spending it for any inventory purchase. Now, with inventory all but depleted, orders have been rising.

The most important factor, however, helping to kick-start the economy is the improving picture of housing. The housing component of the federal government's stimulus package has had the intended impact we had hoped for: decidedly lifting home sales, trimming inventory, and beginning to stabilize home prices. A big part of that successful "housing" stimulus was the first-time buyer tax credit. In fact, as of August an estimated 1.2 million first-time homebuyers took advantage of the tax credit that went to effect in February and joined the ranks of property owners. In the process a chain reaction was unleashed. Many existing homeowners were able to sell their homes to first-timers, and thus purchase their next home.

Let's look at just a few of the recent figures that should cheer us. Existing home sales - both single-family and condominiums/co-ops - rose 7.2 percent from June to July to post a seasonally adjusted annual rate of 5.24 million units. That is the highest month to month increase in at least 10 years. And perhaps even more telling is the fact that resales were higher by 5.0 percent compared to July of 2008. This is the first time in nearly four years that we have seen a positive year over year increase.

Pending sales, too, are on a roll. They continued their upward trend in July, posting positive gains on both a month to a month and year over year basis. In fact, July's index reading of 97.6 was the highest since June of 2007. Affordability, while declining slightly, is still at historically high levels and well above levels seen last year.

To insure that this positive momentum continues - and thus help keep both housing and the economy firmly back on track - a couple of things need to happen.

For one, that first-time homebuyer tax credit needs to continue for a bit longer. Its current expiration date is November 30 - and that is fast approaching. Given the lengthening time it has been taking to close on a home sale recently, a buyer would need to sign a contract by the end of September to assure the settlement occurs by the end of November. (NAR is working with policymakers encouraging an extension of this home buyer tax credit.) The tax credit does add to the already high budget deficit figures. But the economic recovery and the consequent gains in employment and tax revenues have been in the past and will continue to be into the future the principal factor determining a country's fiscal health. Furthermore, given that homeowners pay nearly all of the federal income tax, extending the temporary tax break for the housing sector at a budget cost of about $15 billion to help reverse a deep downturn is well justified. (The other aspects of the huge $787 billion in stimulus can be debated.) The need to get the buyers back could be even more critical at least through the middle of next year because of the incoming rise in newly foreclosed properties. The lingering toxic combination of a high unemployment rate and a sizable number of "underwater" homeowners will mean high foreclosures at least through the spring of 2010. These inventories need to be quickly absorbed.

Of course there are risks. A big wild card in a sustainable recovery is the commercial real estate market. Unlike residential real estate, commercial real estate did not receive much of a stimulus. This sector still faces strenuous challenges, particularly related to the issuance of commercial mortgage securities. On the positive side, the Federal Reserve has put more focus to the issue and it is likely more credit could flow into the currently frozen market. Recent improvements in bank profits and reserves should lead to more lending for small businesses and for commercial real estate. In addition, the improving economy will steadily induce companies to demand new commercial spaces.

Yes, the recession is essentially over - from a weird economists' definition based on production and not based on employment. But a full job recovery will take some time. Jobs will (finally) begin to be created from early 2010. Still, it will take at least 3 years to fully recoup the more than 7 million jobs that will have been lost during this economic cycle. But because of the economic liberty and secure property rights accorded to Americans, the country, despite the harsh short-term economic setback, will no doubt rise up again.

  

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