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Sunday, August 30, 2009

The Depth of This Recession

The other day I was chatting with an acquaintance who is also looking to buy their first home. And their assessment was that the home prices would begin to go up around next summer. All I wanted to say to them is that they are naive. I doubt the housing market will turn around until 2011-2012. It though will stabilize far sooner than that. But "stabilize" only means stop going down and not increase.

And one would ask why? The reason is that the basic underlying fundamentals are not in place and will not be in place for a long time. And these fundamentals include positive growth in economy and job market. There is nothing to sustain increasing housing prices.

In the meantime, some economists are asking why this recovery would be any different from the past recessions. Well, I have only two words for them - China and India. During the past recessions, US did not have any serious competition - for both skills and resources - from any other similar-sized nation in the world. But both India and China have cheaper costs and higher skilled labor market. Sustainable recovery may occur but may not positively affect American people.

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