| The Lay of The Land |
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Dean Baker writes February 3 or Caing.com: The U.S. economy is headed for a rebound in 2010. Trouble is, fallout from the last bubble leaves the outlook up in the air The U.S. economy will continue to be weighed down in 2010 by the after-effects of the bubble collapse in residential and non-residential real estate. This collapse, not the financial crisis that was sparked by the collapse, is the cause of the recession and the main factor suppressing growth. The fallout from the collapse of these bubbles virtually guarantees that 2010 will be a year of slow, and possibly negative, growth with 2011 offering little better prospects. The impact of the housing bubble is fairly straightforward. The run-up in housing prices earlier in the decade led to record rates of housing construction. This led to enormous overbuilding. The country currently has an unprecedented level of vacant housing units. With the collapse of the housing bubble, residential construction has fallen to less than 3 percent of GDP. The loss in annual demand from this drop in construction is close to US$ 500 billion. While construction has now stabilized and risen from the lows reached in the spring of 2009, there is no reason to expect a substantial increase any time soon. Levels should remain more or less flat through 2010 and most likely 2011. With the huge baby boom population reaching retirement age, and many looking to downsize their homes, the demand for housing will be growing slowly for the foreseeable future. To read more, click this link: |
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