Economic Recovery Still Depends On Housing, Says Wells Fargo Economist

Mark Vitner is firmly in the camp of economists who can’t envision a turnaround in America’s economy without a sustained rebound within its housing industry. “Until housing recovers, the economy will have a hard time growing beyond 2%,” said Vitner, a senior economist with Wells Fargo Securities, who offered his economic overview last Friday during a webinar presented by The Shinn Group, the Colorado-based consulting firm. What’s holding that back, in Vitner’s estimation, is “the weakest employment recovery we’ve ever seen.” Wells Fargo foresees the unemployment rate hovering above 9% for at least the next two years. Vitner said businesses aren’t hiring for a lot of reasons: weak consumer demand, as well as employers’ fears about the “uncertainty” of rising fixed costs, such as healthcare and other benefits, which have “racheted up” even as wages and salaries “remain restrained.” Vitner also saw government regulation has being overly “hostile” to business. “It’s a mindset that has to change,” he said. That being said, Wells Fargo projects housing starts will rise in each of the next two years (see chart), and hit 1.5 million by 2016 or 2017. Vitner explained that economic conditions simply haven’t stopped pent-up demand for housing. “The population is growing by 2.7 million [annually] and by one million households,” he said. Vitner also doesn't buy into what he called “Generation Rent,” where younger Americans are supposedly spurning homeownership altogether. Consequently, builders should be motivated to meet this demand with new construction because “there’s very little new inventory out there.”

Click here to view this article from its source.