WHEN WILL THE ECONOMY TURN UP?

Here is an intriguing prediction about when the economy will stabilize and rise again. 

 

It doesn’t come from an Ivy League p.h.d trained to read the economic signs.   Nor does it come from a government economist skilled in reading  statistics.

 

Instead, it comes from a very successful businessman who faces potential buyers and concerned employees all day long most every business day.  This is his prediction and his reasons why: 

THE PREDICTION

The economy will start to turn up once homeowners are convinced that the value of their houses have declined as far as they will likely to go.  Simple as that! 

 

Here are the businessman’s reasons:  The largest single asset most people have is their home.  Two or three years ago it was valued at,  say, $400,000 in the homeowners mind. When he added that together with his 401k’s, his savings and social security, he figured he could downsize and retire comfortably.

 

But now, he has seen similar houses in the neighborhood listed for $349,000 and not selling.   Then he sees the prices cut to $319,000 or $298,000 and still not selling.  The homeowner wonders where the bottom is, especially since he knows of more homes likely to come on the market in the next block and he knows of several people in the area who have real financial problems keeping up their home mortgages and home equity loans.

 

So-----he and his wife have cut back on their expenditures.  They are trying to save a little, by not buying the refrigerator they wanted, the new suit or taking the vacation they had planned. 

 

This businessman’s theory is that once the homeowner realizes his home price has reached the bottom and has stabilized, he will become more secure in his thinking .  He then will begin making his spending and retirement plans based on the reduced “expected” price that his house will bring when he does want to sell it.  Once he has that secure feeling, he will then reconsider spending for the refrigerator, the suit or the vacation. Meanwhile, if he hasn’t become unemployed, he will pay down credit cards and may be able to increase his savings. 

 

 Where will he invest his savings?  Who knows? 

 

How safe is this homeowner’s job?  This same businessman who has his “boots on the sales floor” has an insightful look at what is really causing a lot of the unemployment, and what will bring unemployment to a realistic fix-- not based solely on bailout monies.

The result eventually could be more business efficiency and greater business expenditures and growth.

But ---that is a subject for a separate blog.