Recovery? What Recovery?Submitted by Bernhardt Wealth Management on July 5th, 2011
Soft. Stalled. Uneven. These are the words we've read in headlines that describe the market's recovery. The economy grew at just an 1.8% annual rate in the first quarter of this year, down from 3.1% in the fourth quarter of 2010. Experts agree that two factors critical to any market recovery have been absent in our transitioning market. To get the recovery into high gear, home prices must stop declining and begin their ascent. Second, consumers, the driving engine of our economy, must regain their confidence and begin to spend more freely.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the "new normal" in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, se says the overall recovery is "far more vulnerable to other negatives."
Mark Zandi, chief economist and co-founder of Moody's Economy.com. put a graphic spin on the market's recovery. He says to have a vibrant recovery and economic expansion, housing has to go from "being a headwind to a tailwind." Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jump starting consumer spending and getting the economy moving full steam ahead.