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Recession Start Dec 1969 Nov 1973 Feb 1980 Aug 1981 Jun 1990 Mar 2001 Dec 2007 Recession End Average Starts Six Months Prior (000) Nov 1970 Mar 1975 Jul 1980 Nov 1982 Mar 1991 Nov 2011 Jun 2009 Haubrich wrote, "is to what extent the prob- lems in the housing market can account for the slow recovery so far? Clearly, questions of precedence, causality, and influence are difficult to sort out. Our approach is to ask a counter- factual: What would the current recovery look like if it followed the historical pattern based on the depth of the contraction? Since the recovery in fact is much slower than predicted by just the recession depth—that is, the bounce-back is weaker than expected—we see if the effects of the financial crisis or problems in the housing market can account for the difference." And they did. Sort of. "Residential investment is not a large "The obvious question," Bordo and component of national expenditure, but it is closely linked to the purchases of consumer durables and other housing-sensitive sectors, which together give it a bigger impact," they said, adding, "This finding points to the need for further analysis to determine if weakness in housing was directly to blame for the weak recovery or if it merely reflected or transmit- ted other problems, such as weakness in the intermediary sector. Nonetheless, the role of housing does stand out as a marker for weak- ness in the current recovery." The Fed Official's Take The San Francisco Fed president has been more forthright, acknowledging in a speech in April, "It's impossible to understand the economy of the past few years without taking into account … housing effects." Williams looked at the relationship 1,395 2,010 1,609 1,190 1,319 1,575 1,228 Average Starts Six Months After (000) 1,901 1,161 1,495 1,574 1,011 1,682 578 Change +36.3% -42.3% -7.1% +32.3% -23.4% + 6.8% -52.9% In states where prices fell less, employment declined less." The "overlap," he acknowledged, was not perfect but, "what is fascinating and perhaps surprising is this: The close relationship between the fall in home prices and state economic activity has largely disappeared dur- ing the recovery. There's almost no systematic relationship between employment growth and home price declines." The Public Opinion(s) Like Williams, Jack Guttentag, professor of finance emeritus at the Wharton School at the University of Pennsylvania, looks for other factors responsible for the slow recovery. Residential investment is "not a predictor but a component" of recessions and recoveries, ac- cording to Guttentag. Ed Delgado, COO of special servicer recessions, are not getting funded today," Guttentag said. "The reason is that many borrowers do not qualify today who would have qualified in prior recessions because of the tightening of eligibility requirements, and many borrowers today do not have enough equity to qualify for the rate they need to make the refinance profitable [yet they] would have had enough equity in prior recessions." Stan Konwiser, president of Seaward Corp., a New Jersey-based marketing firm that caters to the financial services sector among a broad range of industries, asserts there are three issues central to the pace of the current recovery. "Two of them are seen in the nature of the bubble that preceded the economic collapse (debt expansion and outsized bank profits) with the third contributing to the lack of subsequent growth," he said. According to Konwiser, the roots of the 2007-2009 recession date to the early 1950s with the introduction of the first unsecured credit card, which he said triggered a spiral in which the economy became "more and more reliant on debt to fuel growth." Mortgage securitization, Konwiser said, Wingspan Portfolio Advisors, disagrees. "Residential investment is always a predictor of recessions and recoveries. No other industry has as much impact as housing on every sector of the economy," he said. Guttentag points out, however, that the between states he described as "hit hard by the housing bust and states that got off relatively lightly." The hardest hit states, he observed, were Nevada, Arizona, California, and Florida. "The overlap [of employment declines] with the pattern of house price declines," Williams said, "is striking. The states where home prices fell most were generally among those that suf- fered the worst job losses during the recession. 90 role of housing in this recession-recovery cycle is different. "The housing sector has generally been a source of strength during recessions but not during the current recession," he said. "The major reason is that, in prior recessions, interest rate declines stimulated the housing sector, but in the current recession, lower rates have been nullified by tougher rules on who can borrow. Many of these rules are new but some are old ones that have become counter-productive in the current environment. Federal housing poli- cies should be neutral; they should not respond to cyclical changes in markets." Guttentag's recipe for recovery is to ease rules and increase lending, taking into account the ripple effect of housing-related spending. "Millions of refinance transactions that would increase the spending power of homeowners, which would have been funded in prior "coupled with the low interest rates supported by the Fed allowed the normally illiquid value of people's homes to be unlocked as debt to fuel economic growth … right up until the collapse when the world realized that all this debt-induced economic growth was unsustain- able." Diminished investment in residential real estate, he said, "is more a symptom than a cause of the slow recovery." For recovery, the biggest hindrance is confidence, according to John Griggs, COO of Ascension Capital Group, a creditor outsourcer for bankruptcy and litigation services. "Residential investment will come after the economy starts to recover," Griggs said. "Unemployment remains stubbornly high, and the number of people unemployed longer than 26 weeks remains at unprecedented levels. In addition, nearly a quarter of residential proper- ties with a mortgage are underwater. That is hundreds of billions of dollars of lost equity and wealth. According to a Fed survey, median net worth dropped 38.8 percent between 2007 and 2010. Family wealth is now down to 1992 lev- els. American consumers are scared and skepti- cal and will continue to rein in their spending

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