As I predicted on this page at the beginning of the year, the housing market has turned the corner.
The Zillow Home Value Index experienced the first year-over-year increase since 2007, the fourth consecutive month of increasing value. The Federal Housing Finance Agency also reported the fourth straight month of rising home prices in May.
At their current rate, new home sales are on track to beat last year’s numbers by 17 percent. Compared to a year earlier, the inventory of unsold existing homes has been declining for sixteen consecutive months. In fact, this month we saw the biggest drop in inventory ever reported.
Last month, housing starts reached their highest level since October 2008. This month, home builder confidence reached the highest level since March 2007. Foreclosures in distressed markets like California have reached their lowest level since 2007.
In other words, our long national nightmare is over.
And yet, our malaise has only deepened. Output growth is weak, unemployment remains stuck at 8.2 percent, and the twin engines of growth — exports and manufacturing — have stalled. If the cause of our discontent has reversed course, what fresh hell is holding us back?
Some of the blame belongs to the European Union, whose weakness has driven the euro down, making the U.S. dollar more expensive. As a result, exports have flatlined, along with the manufacturing sector that depends on them.
But the real sand in the wheels has been the cutbacks in Washington.
No, that’s not a typo. Despite all the news you’ve heard about the big bad budget deficit, the truth is that the government has been retreating, leaving the private sector to fend for itself.
In the two and a half years since the end of the recession, government spending, adjusted for inflation, has fallen by 2.6 percent. Government purchases have also fallen by 2.6 percent. Government employment has fallen by 2.7 percent.
Compare that to the two and a half years after the end of the 1982 recession, over which Ronald Reagan presided. By this point in Reagan’s term, government spending had increased by 10.2 percent, government purchases had increased by 11.6 percent, and government employment had increased by 3.1 percent.
Or we could compare to George W. Bush. From 2000 to 2007, government spending grew faster than it has from 2007 to 2011.
Any way you measure it, government spending growth has been very weak.
From 1980 to 1984, real government spending increased over 14 percent. From 2008 to 2012, in contrast, it has increased only 6 percent. And, since the beginning of last year, it has turned negative. In fact, this year, real government spending per capita is falling faster than it has since the aftermath of the Korean War.
But the real bloodbath is yet to come. On January 1st, $110 billion in automatic spending cuts are scheduled to kick in, followed by over $1 trillion more in spending cuts and tax increases over the next decade — unless, of course, Congress enacts a new law to postpone them.
Republicans are particularly concerned about this so-called “fiscal cliff,” not only because they abhor tax increases, but especially because half of the spending cuts will come from the Pentagon. Democrats are equally concerned about the possible extension of the Bush tax cuts for the rich, which are scheduled to expire at the end of the year.
So Democratic Senator Patty Murray made them an offer: We will agree to postpone the “fiscal cliff” if you will agree not to extend the Bush tax cuts for household incomes above $250,000.
Senate Democrats held up their end of the bargain on Wednesday, passing a bill to extend all the Bush tax cuts below $250,000. But Washington insiders say that the bill is as good as dead in the Republican-controlled House.
House Republicans, it seems, are determined to hold the economy hostage to the selfish interests of the rich — yet again.
But it doesn’t have to go down like this. Weak economic growth is not a fait accompli. The fundamentals of our economy are improving. The recovery will accelerate…if the government steps up like it did in previous recoveries.
This op-ed was published in today’s South Florida Sun-Sentinel.