Recession Deux

"Prediction is very difficult, especially about the future." - Niels Bohr

It seems relatively clear to me that we are now entering another recession.  I have named it Recession Deux as I believe it to be a double dip recession rather than a new recession altogether.  We never truly recovered from the recession of 2008 and all indicators are pointing to us falling into part two of the Great Recession as some people have named it.

A recession does not normally end without some form of stability or growth in the housing market.  Most of the population in the United States relies on housing as their main investment and retirement fund.  In fact according to the federal government 50 percent of typical home-owning family wealth is tied to their real estate investments.  As a market housing was valued at over $18 trillion as of the first quarter of 2011.  However this does not tell the whole story.  Housing as an industry accounts for about 27 percent of investment spending and 5 percent of overall economic activity in the United States annually.

Looking at housing data points to continued economic weakness.  New home sales decreased for the third consecutive month.  Furthermore existing home sales fell to 4.67 million homes in July.  This is the second straight month of sales declines and the National Association of Realtors blamed the number of contracts that were cancelled as the source of the weakness.  Sales cancellations point to a couple of areas of weakness: it is still difficult to find a lender willing to lend against housing; appraisals are coming in lower than the negotiated price of the house sale creating an additional problem with financing; and, with housing prices continuing to fall buyers are reconsidering buying.  Until the inventory of distressed housing is cleared continued economic weakness will ensue.  Considering that the lack of sales has pushed inventory levels to 9.4 months of supply the highest point since November 2010, it is unlikely that there is any economic recovery in the works.

In fact when you consider that the Federal Reserve has pushed over $3 trillion of stimulus into the economy and there is little to show for their actions it is easy to see why the weak recovery is turning to Recession Deux.