Housing Is Stalling U.S. and World Economic Recovery

Posted by Jim DeBellis on May 24th, 2011

The U.S. housing market – once the crown jewel of the economy in those glorious bubble years – is now holding back the recovery of the broader economic picture, both domestically and globally. Bloomberg is reporting today that the yield on 10-year Treasuries is already within 5 basis points (five hundredths of one percent) of the year’s low, and that was before the government released a report forecasting a continued and difficult struggle for the housing market.

A strategist at a large securities house in London says that the “fear factor” relating to U.S economic growth (as well as China’s over-building and troubles in the euro zone) are driving yields down, and pessimism over U.S. new home sales is fueling the panic.

Home sales have rebounded a bit from the February low of 270,000 up to 300,000 in April, but the anemic housing market has the Federal Reserve still buying up our debt (i.e. printing money) by the billions and keeping interest rates low enough to weaken the dollar on the international market. Since the dollar is the standard used to set the price of oil and other commodities (like rice and wheat and corn), this makes your gas and food more expensive.

Perhaps the most worrisome impact of the fear and lack of confidence in the U.S. economy and currency is the fact that the yield on those 10-year Treasuries has dipped below the rate of inflation for the first time since October, 2008. (Remember Lehman Brothers melting, Wall Street on fire, AIG near default, and the government forcing Bank of America to buy and save Merrill Lynch? Yeah…then.)

Have a nice day!