Economist Sees Midwest Housing Market Stabilizing
A decrease in the national unemployment rate and a boost in average household income point to improvement in the housing market, a LaSalle Bank Corp. chief economist said, but Midwest states will need to improve their tax climates before economic conditions can strengthen in the region.
At an event sponsored by the Columbus Council on World Affairs Thursday, Carl Tannenbaum acknowledged the slumping housing industry poses a risk to the nation’s economy next year, but he expects the housing market will correct, rather than crash, in the coming months.
A significant decrease in the unemployment and an increase in the average household income should help the industry recover from its decline, which is a result of the high volumes of houses sold in 2002 and 2003 when mortgage rates were rock bottom.
“A lot of houses were sold before the slump began, and with the average household income up 6 percent (from last year), the remodeling of those homes will keep the demand for durables up,” he said.
Homeowners spending money to update their residences by taking out home equity loans will contribute to stabilizing the economy, Tannenbaum said.
The nation’s unemployment rate was 4.6 percent in September, down from 5.1 percent last year and 5.5 percent in 2004. With more than 5 million jobs created since 2004, Tannenbaum expects an increase in job relocations, which also would spur housing sales.
Though some economists have estimated that rising gas prices have deepened the housing industry’s slump in many areas of the U.S., Tannenbaum said consumers shouldn’t worry about fuel costs because those expenses account for just 3 percent of the average household budget.
In the Midwest, which Tannenbaum said is lagging the rest of the nation, troubles in the automotive industry and a poor tax environment are resulting in a slow economy and making the region unattractive for businesses.
The area, he said, must focus on other industries, such as equipment manufacturing and financial services, to pick up the slack. Because home mortgage loans are still at relatively low levels, there is a chance for the market to bounce back more quickly than many think.