The top story is still Europe, but a bore except for the entertaining incompetence on parade. Dr. Johnson maintained that nothing so concentrates the mind as the prospect of one’s hanging in the morning, but that concept has eluded Europe.

All bond markets there fell apart this week, saved from collapse only by the purchases of the European Central Bank, which said it is forbidden by treaty to do so, won’t do, can’t do, but is doing. All other paths to euro status quo salvation are dead.

The top story is still Europe, but a bore except for the entertaining incompetence on parade. Dr. Johnson maintained that nothing so concentrates the mind as the prospect of one’s hanging in the morning, but that concept has eluded Europe.

All bond markets there fell apart this week, saved from collapse only by the purchases of the European Central Bank, which said it is forbidden by treaty to do so, won’t do, can’t do, but is doing. All other paths to euro status quo salvation are dead.

Club Med will sooner or later default on a couple of trillion in euro-IOUs. The ECB can buy time, but the hopes that an enormous credit loss can be handed to the ECB — like telling the Maitre d’hôtel to remove an unfortunate plate of fish — would only magnify ultimate danger. And, contrary to hopeful policy-mongers, such an attempted burial of credit loss at the ECB has no parallel to our Fed’s QE.

Here at home the stream of economic data is OK. However, the general run of commentary is now just as excessively positive now as it was negative in August into September.

Inflation is no threat at all: Core producer prices were unchanged in October, and CPI rose only 0.1 percent. The values including energy and food fell, 0.3 percent and 0.1 percent, respectively, indicating downward pressure in the pipeline. Industrial production (down in September, up in October), the New York and Philadelphia Fed indexes — just wobbling back and forth across baseline. A bright spot, retail sales up a half-percent in October … careful with that. We should be getting something for $1.3 trillion in deficit spending this year.

Genuine reason for thanks: A lot of media and government people are suddenly speaking to housing. Six years in purgatory may be enough. Even those hostile to the likes of Fannie understand that credit is too tight. However, one debate remains: Do we need jobs before housing can recover, or are jobs dependent on housing?

Time out from Europe for research, and the jury is in: housing first. (Sources NBER, NAR, Department of Labor, and Freddie.)

Recession: November ’73 to March ’75: Home sales rose from January 1975 bottom to the pre-recession level by July. Unemployment insurance claims did crest in March ’75, and the rate of unemployment at 9.1 percent, but that rate was still above 8 percent in mid-’76, 16 months after the housing turn.

Recession: October ’79 to November ’82: The NBER pegs the start in January 1980, and calls two separate recessions in the period, but I was there — it began earlier and was all one crater. Home sales crashed by October ’79 under the weight of Paul Volcker’s jack of mortgage rates to 11.64 percent (top: 18.45 percent in ’81, not below 14 percent until fall ’82). The housing crash: from 3.77 million annualized in ’79 to bottom in May ’82 at 1.86 million, back to 2.57 million by January ’83. Unemployment soared from 5.6 percent to 11.4 percent, at its worst simultaneous with that January ’83 housing recovery, and unemployment did not fall below 8 percent for another 14 months. Pattern there.

Recession: July ’90 to March ’91: Existing-home sales fell from a 3 million pre-recession pace in to 2.6 million in December 1990, damage done by mortgage rates rising through 10 percent, sales back above 3 million by May ’91. Pre-recession unemployment was 5.6 percent; it did not top out at 8.2 percent until nine months after home-sales recovery, did not fall below 8 percent for another year, and elevated claims for unemployment insurance did not normalize until another six months after that.

We have had two recessions since, the Mini from March-November 2001, and the Great, December 2007 to officially end (uh-huh) in June 2009. These two are anomalous: In the Mini, housing did fine throughout, supported by record-low rates and sign-here credit. Maybe that’s why it was Mini? Could be? The Great, of course, was made "great" by the collapse of idiot-credit, and not even all-time-record-low rates can overcome today’s credit drought. The 30-year fixed-rate mortgage is 4 percent, but don’t bother to apply.

I do try to write without saying something unpleasant about the president. However, in light of historical evidence his focus on shovel-in-the-mail jobs programs and utter, total absence of housing policy seem a bit odd.

In numbing detail, this fine academic work proves that the sun does, in fact, rise in the east. If anybody STILL wants to argue about housing as the central U.S. economic problem, send ’em this. Teasing aside, it is very well done, and casket-shut conclusive.

This week Bill Dudley, New York Fed president and certified White Hat, delivered the best speech on the economy, housing-heavy, since the Great Recession began. You may correctly assume that the Fed is exhausted with a White House, Treasury and Congress that simply will not pay attention, and are void of imagination. Dudley’s remarks are nontechnical, refreshing to any real estate professional, and reassuring to any civilian feeling abandoned. The cavalry will come one day. 

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