American Dream Responsible For Holding Back the Recovery

By: Dr. Mike Campbell

An integral part of the American dream is the concept of owning your own home. It seems to be woven deeply into the psyche of the American people. The global financial meltdown was largely triggered by a sudden loss of confidence in the ability of some borrowers to repay their housing loans. In the 1990s, money to finance a home purchase had been in ready supply; even to those whom a more level headed analysis would have identified as being “bad risks”. The activity was so rife that it even had a special name “sub-prime” lending.

Inevitably, the sub-prime crisis triggered house price depreciation as loans were foreclosed and jobs were lost, forcing more households over the brink, as the global recession gathered pace. House price depression and the recession had a knock-on effect on the construction industry, of course, costing many people in that sector their jobs.

Whilst the recovery, such as it is, has led to increased demand for housing which has become more affordable and stimulus measures were put in place to stimulate both house sales and construction, the sector is now being blamed by President Obama for being a drag on the recovery. According to the President, there is now a glut of housing available on the market since some 2 million new homes being constructed each year whereas only 1.4 million were absorbed by the market at the peak of the construction boom. The President did not offer any suggestions as to how the problem could be talked, in the short term. Over a longer period, market forces will suppress new construction (and construction jobs) until demand outstrips supply. Mr Obama was speaking to a small group of voters in Columbus, Ohio. The US will hold mid-term elections in November.