Double Dip Looming for Housing Prices and its Impact on Economic Growth

Abstract

An assessment of the current state of housing viewed from the perspective of the slowly-recovering economy, coupled with valuations of the housing market, suggests there is a high likelihood of a double dip in housing prices. With current prices nearly 30 percent below their April 2006 peak, an additional decline of 5-10 percent is expected.

With housing uncharacteristically not driving the recession’s recovery, further price declines are not seen as driving expected lower economic growth for the second half of this year. Continued weak demand and subdued consumer expenditures and possible slowing of exports and manufacturing – two drivers of economic growth in the first half of 2010 – seem likely to steer the country into a state of “jobless recovery” or a “growth recession.” The economy will likely grow but not enough to reduce the high unemployment rates. The possibility of a double-dip recession is also explored.

Keywords: Economic Growth, Unemployment Rate, Housing Prices, Recession, Banking Crisis, Growth Recession, Double-Dip Recession, Personal Savings Rate, Consumer Spending, Housing Bubble, Productivity

JEL Classification: E21, E22, E24, E32, E44, J21, J64, P43