Is Bob Toll Right?

Implications: I believe we will now have a business downturn as result of reduced demand in the housing and auto industries and the debt service requirement on the federal budget.  I think China and other offshore sources have been funding our consumer spending with low interest rates when they advance funds to our federal government.  This subsidy to our consumption will not continue.  Granted that all the manufacturing capacity set up in the 3^rd world is keyed to our tastes and buying power, it still doesn’t seem to me that the same prosperity will continue. I believe there is a real chance that we will have a change of administration in the next election and the Democrats then will impose the will of the common man to change the distribution of wealth.In the meantime, I believe we will float in lame duck fashion to an economic downturn in anticipation of the change.

Analysis:

This contrary position holds that we are way overpriced with our housing product and there is inevitability to a less prosperous time.  This train of thought holds that nothing has fundamentally changed in the premise that people have to be able to pay for the product from wages and earnings.  The recent decrease in the inventory of resale properties is explained by the premise that many sellers have grown tired of being on the market without results and withdrawn their listings.  The latest better affordability factors mean that the properties that are selling are at lower ratios.

In each of the declines in new housing since 1955 with an exception in 1963, the decline has been followed by a recession.  Trade participants in the residential realty business and in home building have been beating the drums predicting a return to health in the markets partly from the true belief of an optimist and partly from interest in continuing profits.  There are numerous false positive indicators to refer to.  There are also others who just say that this century is different and that the success of other industries will carry us away from a faltering business climate.  I find their arguments lacking in that I cannot yet see the wisdom of their position.