Thursday, August 16 , 2018, 3:56 pm | Fair 77º


Bill Masho: Walking on Eggshells in a Frightening Economy

Recovery has yet to find firm footing, heightening tensions for wary — and weary — consumers

Six months into 2011, the economy is still bumping along the road to recovery, and the journey has been rough for a lot of Americans. Just last week, the Labor Department released its widely watched Payrolls Report, which showed an increase of 54,000 jobs — well short of the median forecast in a Bloomberg News survey that called for an increase of 165,000. The unemployment rate also rose to 9.1 percent.

In a separate report, data from the Institute for Supply Management showed that manufacturing expanded at its slowest rate last month in more than a year.

The ever-prescient stock markets sensed these trends a few weeks ago and have been selling off in anticipation of slower growth. The Dow Jones Industrial Average has fallen for five straight weeks, representing its longest streak of losses since 2004. Many consumer products companies have been lowering their earnings guidance in reaction to the tepid consumer demand.

The biggest challenge to the consumer’s wallet has been noncore inflation — specifically measured by food and energy prices. The cost to feed a family, heat the house and put gas in the car has been rising persistently. You have probably seen this in the price of coffee at the supermarket and the price of gas at the pump. This noncore inflation has only been partially offset by modest core inflation — the price of everything else.

Real estate has always been cyclical, and the weakness of recent years is likely to persist for several more years. The credit bubble that led to the Great Recession was directly related to excess lending in the housing markets. The bubble burst in 2008, shortly after home prices peaked in 2006-2007, depending on your location. Although the federal government was able to step in and bail out the U.S. financial system, including many of the banks, it was messy process and the cleanup continues today.

The problem is simple yet complex. There is an enormous inventory of foreclosed homes, and an equal number of homes that would benefit from a short sale (the accepted sale price is less than the mortgage amount). In both situations, the bank and/or investors who own that mortgage must realize the loss on the investment. Understandably, many are reluctant to do so, and the inventory builds up.

In addition, buyers are scarce. In spite of lower housing prices, the cost to rent a home in many U.S. cities is more attractive than buying. Ironically, those families who are ready to buy are often turned down for loan approval by the very banks that are in business to lend. A good job and a good credit score may not be enough to get a loan. You will also need a significant down payment, as well. My comment would be that home loan underwriting is too restrictive today.

The end result is that many areas of the country are close to experiencing a double dip in their housing markets. Since 2010, when prices were stabilizing in most areas, the larger inventory of distressed properties combined with weaker demand have caused a softening of prices in 2011. In some parts of the country where job formation is stronger, the opposite is true.

But no matter where you live, the recovery will likely be modest for some time to come. The economic events of 2008 were like no other, and this recovery will be like no other, as well.

— Bill Masho is the broker/owner of Masho Associates. He can be reached at 805.895.4362.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through Stripe below, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >