Warning: Undefined variable $custom_content in /home4/comcompare/public_html/mortgagenews/wp-content/plugins/code-snippets/php/snippet-ops.php(582) : eval()'d code on line 10
Many economists believe that a recession will occur later this year or early next year. A consumer survey shows some Americans believe the recession has already begun.
Inflation became an important factor in their beliefs when prices began to rise faster than income.
The debate about shrinkage has shifted from when it occurs to how bad it is. The Great Recession may have been the worst recession since the Great Depression. The Great Recession ran from 2007 to 2009. Its signs included a 5.1% decline in gross domestic product and a 10.1% increase in unemployment.
Another impact felt by millions of Americans is a drop in real estate prices of more than 50% in some regions.
Everything the homeowners have earned over the years or decades in the home is erased.
Many homes are worth less than their debts. Falling home prices have left some Americans feeling poor. Their houses are their great possessions. They can even be a major source of retirement savings. These people stop consuming everything except necessities.
US unemployment was 3.6% in June, one of the lowest points since World War II. There are also overtime workers. In 2006, the unemployment rate was 4.4%, more than doubling during the Great Recession.
Could the national house price drop by 10% or even 20%? Keep in mind that the S&P Case Shiller home price index is up 20% annually for most months of this year. An important reason is extremely low mortgage rates.
The housing market has already cooled in some parts of the country as interest rates on loans have risen by 5%. It could be even higher if the Federal Reserve continues to raise rates.
Home affordability is starting to take a toll on home prices. Inflation can kill consumer spending. It can also erode corporate margins. Many experts expect inflation to remain above 8% for the balance of this year.
Renowned economist Larry Summers believes that to reduce inflation, the unemployment rate should be 7.5% for two years in the next five or 10% in one of those years.
His exact quote, as recorded by Bloomberg, is: “We need five years of unemployment above 5% to have inflation – that is, we need two years of 7.5% unemployment. Or five years of 6% unemployment or one year of unemployment. 10% unemployment.”
Another Great Recession? This is unthinkable.
Reference Source: 24/7 Wall St
