Sizing up housing's role in new economy

Flickr image by Mike Licht, NotionsCapital.com.

Just when everyone was certain that long term rates would rise, they fell.

Wednesday's 10-year Treasury-note auction drew more bidders than any since 1994, and its yield thumped down from near 4 percent to 3.85 percent, mortgages back down to 5.125 percent. The improvement is gradually reversing, but for the moment we're OK.

An $11.5 billion dive in consumer credit in February more than wiped out a revised gain in January, the first in 11 months. New claims for unemployment insurance were supposed to continue improvement and drop to 433,000, but instead jumped to 460,000.

Careful with the "hosannas" to March retail sales: the measure that jumped 9 percent was a year-over-year comparison, and March last year was the pit of panic.

The easy Treasury auction revealed the enormous gulf between the noisy sustained-recovery believers and the quiet skeptics who elbowed to buy the bonds.

Federal Reserve Chairman Ben Bernanke laid it out this week: "We are still far from being out of the woods. Many Americans are still grappling with unemployment or foreclosure, or both."

Along the whole length of disagreement, the widest spot in the canyon: those who understand the impact of housing on the economy and those who do not.

Many have believed with some merit that too many American resources have gone to housing: too much credit, too many tax benefits, too much consumption, houses too big, and too much assistance to undeserving, wannabe owners.

Others believe -- with little merit -- that everybody should put more money into the stock market instead of those silly houses.

There's nothing like a blown bubble to create momentum for reallocation. Certified good-guy, Fed Vice Chairman Donald Kohn, in his most recent pre-retirement farewell: "Housing is almost certainly going to be a smaller part of the economy than it was when lax credit standards encouraged overbuilding and over-borrowing."

That's fine: no more lax standards. However, Kohn went on: "Households need to continue rebuilding wealth. They became too indebted and too dependent on housing wealth to finance current purchases and provide for future events like the education of their children and their retirement. Now they need to repay debt and save more out of current income."

You hear some version of that every day, but not from senior policymakers. The reason: Americans have not saved significant sums since the 1970s, and have never "built wealth" by saving from current income. We build wealth just like everyone else on earth, by the rising values of our assets. ...CONTINUED

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