"We're in the midst of a post-tax credit pause in home sales, but the length and depth of the pause don't depend heavily on consumer spending. This time, businesses are in the driver's seat. Consumers are largely tapped out. For the past 18 months or so, low interest rates and home buyer tax credit drew consumers into the housing market, giving enough of a boost to the economy to help pull it out of the recent recession.
Businesses, having earlier made painful staff cuts, are now seeing profit growth. If this were a more normal recovery, these newly profitable businesses would be adding employees and expanding into new markets. But because of uncertainties about the economy and new federal plicis that affect businesses, we're seeing little of that. The result? Stalled economic growth, continuing high unemployment, and the prospect that the current pause in home sales could deepen into something more serious.
If the pause does deepen, home prices-which have been stable for the last 18 months-could turn negative again. However, significant price changes aren't expected in either direction; prices today are closely aligned with incomes and there's been little new construction to add to housing inventories. Against this backdrop, we need businesses to shift gears and start creating jobs. In Houston and Washington, D.C., where jobs are growing, pending sales contracts also remainded healthy in August, despite the absence of the tax credit.
Should business spending rise to where it should be, the economy could easily grow at a 5 percent rate. That would corespond to very healthy employment gains of possibly 3 million jobs in a single year. That's what we need to see before the pause button on home sales will be lifted."
-Lawrence Yun
Chief Economist of NAR
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