Monday, September 5, 2011

The Great Recovery


These days of volatility and uncertainty seem only to spell doom and gloom. Many economists are putting a 40% probability on a double-dip recession; others think the Great Recession has never ended. It is possible that their black views are right, but, in my opinion, a second recession if it happens will likely be short lived.

In earlier posts I foresaw a significant revival of the U.S. economy despite the political impotence displayed by the Republican and Democratic parties. I pointed to the U.S. freedom to innovate; its entrepreneurial spirit and North America's relative abundance of resources as opposed to China. In this post, I want to present to you U.S.' secret weapon: Demographics!

According to Richard Dolan author of 'Life Rich Real Estate', there are four generations of Americans and Canadians waiting to buy their 'home away from home'. Recreational properties and investment properties are the targets. In addition, every year since 2008 over 1 million properties have been foreclosed upon in the U.S. According to U.S. rules, people who have been foreclosed upon 3 years ago are becoming now once again eligible for mortgages. So starting in 2012 every year 1 million previously foreclosed people may return into the real estate market.

If the U.S. was overbuild between 2000 and 2007; the pendulum has now gone to the other extreme and over the last 4 years housing starts have been far below the levels needed for U.S. population growth (9.7% over the last 10 years). European populations may be shrinking but not that of the U.S. The demand for 2nd homes or rental properties combined with the housing demand of a growing population and the annual return of 1 million potential home buyers that are once again eligible for mortgages suggest a strongly improving housing market for the U.S. in the not-too-distant future.

New housing and increased property purchases will lead to all kinds of product demands and a reinvigorated U.S. consumer. This may be the spark that the U.S. economy needs to rise from its economic doldrums. Without this spark we may continue to experience the sluggish recovery that started in 2009 but the revival of the U.S. housing market in 2012-2013 could well be the game changer that makes this the 'Great Recovery'.

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