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A Disappointing Jobs Report

Doom at the end of the tunnel?

12:00 AM, Apr 7, 2012 • By IRWIN M. STELZER
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The other source of good news is more surprising: housing. Because apartment vacancies are at a decades-low level, rental rates are rising, making the relative cost of buying a home more attractive than in a very long while. Nishu Sood, housing analyst with Deutsche Bank, reports that historically it cost about 10 percent less to rent an apartment than to own a home; now it costs 15 percent more to rent than to buy. That, along with rates on 30-year fixed mortgages that remain below 4 percent, has previously reluctant buyers ringing their estate agents. One major builder tells me that this year “has no relation” to the dreary years of the past as Americans and foreigners are back in the market, the latter buying condos and houses in the U.S. as vacation homes or to store their excess capital in a safe country. Nearly half of the purchases by foreigners were all-cash deals, and many of the buy-to-let deals were made by investment groups snapping up as many as 1,000 homes for rental now, and sale when prices recover. Several builders have been accumulating “land banks” at recession-prices. Many of these parcels already have utilities in place, and so are shovel-ready.

This is not to say that all is well in the housing market. Credit standards are high, preventing some buyers from getting mortgages. Prices remain about one-third below their peaks, and some say will fall another 3 percent this year. About 25 percent of all mortgages exceed the value of the homes that secure those mortgages, and foreclosures are rising sharply now that legal problems surrounding repossession procedures have been resolved. Still, at minimum the housing sector will be less of a drag on the economy than it has been in the past.

All of this data won’t be as significant if our politicians carry their uncompromising partisanship beyond November’s election. At the end of this year four events are on the calendar, almost any one of which can bring the recovery to a screeching halt, and all combined can hurl the economy over what Fed chairman Ben Bernanke calls “a massive fiscal cliff,” making a mere recession seem like a pleasant walk in the park.

Unless Democrats and Republicans can come to a deal, the Bush tax cuts will expire, payroll tax relief will end, automatic spending cuts previously agreed will come into effect, and America will hit the ceiling on what it can borrow. Such fiscal tightening can knock 3 percent - 4 percent off GDP.

It is not inconceivable that the lame duck Congress will leave these problems to its successor, as would Obama should he be busy packing his belongings at the White House. If Obama loses in November, his successor would be powerless to act until sworn in late in January. We have seen in Europe just what ill-timed, badly paced fiscal tightening—that is, austerity—can do to an economy. “It’s not quite Armageddon,” notes Bloomberg Businessweek, which is not quite reassuring.

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