A really interesting piece from the Times‘ Binyamin Appelbaum focuses on how parts of the country where the housing bubble was the most pronounced — and where there was historically nowhere near the same level of economic output prior to the bubble that there was during those golden years — aren’t bouncing-back as textbook economics would lead one to expect. Still sagging under the weight of so much toxic debt, these communities remain in a de facto recession. My emphasis:
The official statistics say that the national economy has been growing for almost three years, and that Maryland is growing faster than most states. But in Prince George’s County, where housing prices have fallen more than anywhere else in the state, there is scant evidence of renewed prosperity.…
A growing body of research suggests that the recent recession may have brought an enduring shift in the geography of American growth. Places like Gwinnett County near Atlanta, Lake County, north of Orlando, and San Joaquin County in California’s central valley, where housing booms were fueled by borrowed money, may now become long-term laggards under the weight of those debts.…
“Typically where the recession hits hardest the comeback is more vibrant,” said Amir Sufi, a finance professor at the University of Chicago who is an author of several of the studies. “We’re not seeing that this time around.”…
Housing prices in Prince George’s more than doubled from 2001 to 2006, reaching an average of $341,456. The average household, in turn, accumulated debts exceeding 2.5 times its annual income. The crash, when it came, wiped away much wealth and some income — but none of those debts.
The slow pace of the current recovery has led some economists to revisit that assumption. Interest rates cannot fall below zero, and they argue that the hole is so large that zero is not low enough to attract all the new spending needed to fill it.
Professor Sufi and his colleagues were among the first to present evidence for this theory. They used credit card data to show that spending in high-debt counties fell more sharply during the recession : on durable goods like dishwashers, nondurable goods like clothing and even on groceries. The sharpest drops happened in areas where people reported little wealth beyond their homes.
In a second study , Professor Sufi and Atif Mian, an economist at the University of California, Berkeley, divided jobs into two categories: Those that depend on local spending, like waiters in restaurants, and those, like factory workers, that can be sustained by spending in other places. They found that employment in local jobs fell much more sharply in high-debt counties from 2007 to 2009.
Now, one response to the above from Yes We Can Democrats and liberals might be to push hard for a serious wave of refinancing for Fannie Mae and Freddie Mac — because they’restill holding a rather large bag full of loans and because it’s the most politically feasible (and Constitutional) route available.
And indeed, some Dems in Congress are doing just that; or, rather, they’re trying.
The thing is, that more feasible route? Well, it’s still not very feasible. The current head of the agency that controls the private/government real estate behemoth ain’t interested in reducing mortgages and as ProPublica notes, due to (you guessed it!) a Republican filibuster, there’s not much the President can do to replace him. Don’t stop me if you’ve heard this one before; I know you have and I’m not finished.
Sorry to say, it actually gets worse. Even if Obama was, somehow, able to replace DeMarco with someone more amenable to Congressional Dems’ mortgage-reducing fantasies, there’s no guarantee that that would actually fix the problem! Because, as the Times piece above points out, it’s not exactly clear that homeowners are spending so much less due to their mortgage, reasonable a supposition as that may be. The problem very well may be that even if (note: this is the second big “if”) homeowners received lower mortgage rates and had more money to burn, or a situation in which borrowing more money might not be such a non-starter, there’s still the problem of where they’re going to get the money from:
Household debt is now in decline. The Federal Reserve calculates that average household debt payments as a share of disposable income fell below 16 percent in 2011, from a peak of 18.85 percent in 2007. But it is not clear where the process of paying down debt, or deleveraging, will stop, or how long that might take. Economists do not even agree whether people are reducing debts voluntarily, or whether banks are forcing a change in lifestyle by refusing loans and reducing borrowing limits.
I am not an economist, as any frequent reader of this blog knows all too well, but I’ll hazard to say that I’m skeptical of any theory hinging on bankers learning their lesson. I’ve just got a feeling that if Wall Street could relive most of the past 30 years, they’d do it in a heartbeat. After all, a lot of people got wealthier than most of us can even fathom. So I’m offering a grain of salt alongside that “the banks won’t loan” theory — do with it what you will.
It’s all a bit of a moot point, though, isn’t it? Whether it’s because of the banks, or DeMarco, or the Senate, or mandated contraception, the end result is the same: no help for Prince George’s County and the hundreds — thousands? — of places just like it throughout the United States. They seem consigned to more or less an indefinite future of stagnation and decline. If not for the fact that Springsteen’s best years are already well behind him, there might’ve been a silver lining. But they are, and there ain’t.
These communities are going, boys, and they ain’t coming back.