There are a few good things happening out there on the economic front. When everyone else is playing chicken little, it’s hard to see the good news, but it is out there.
1. Oil and other commodity prices are falling. Falling oil prices are pushing down gas prices and that is a major support for consumers (via Carpe Diem).
The drop in gas prices from $4.12 in July to the current $2.07 per gallon will generate annual savings of more than $300 billion for American consumers and businesses (each $1 fall in gas prices = $142 approximately billion annual savings).
As I’ve said before, I think the ultimate outcome of current government policy will be inflation, but at least for now, falling commodity prices are providing some relief.
2. Real Estate Sales are rising in some of the more distressed areas. Prices are still falling but at least it seems we are hitting the price point where buyers are willing to step up (via WSJ):
Drop prices low enough and the buyers will come. Home sales in Southern California rose again last month, according to a report released today by San Diego-based MDA DataQuick. The real estate information service reported that in October 21,532 houses and condos closed escrow in six counties in California — Los Angeles, Orange, Riverside, San Bernadino, San Diego and Ventura. This was up 5% from September and 66.7% from last year. More than half of all sales were on homes that were foreclosed on at some point in the previous 12 months. Typically real estate sales slow down from September to October.
At $300,000 the median home price in the six-county region was at its lowest since April 2003.
There’s even some good news in the Miami condo market (via the Miami Herald):
Miami’s latest building boom is creating 22,000 condominium units in the city’s urban center, more than double the number built in the past 40 years.
But the question everyone wants answered amid the real estate downturn is: How many have actually sold?
Seventy percent have found a buyer, according to a new study by condovultures.com, a real estate consultancy. But nearly a quarter of the condos — including some of the largest projects — built during the boom will be delivered over the next several months.
So far, 17,299 condos have been finished and 12,169 have closed at an average price of $405,966 per unit, adding up to total sales of nearly $5 billion in the greater downtown Miami area, which includes the Brickell, central business district and Midtown neighborhoods.
Those sales are better than many observers expected for a downtown area often viewed as ground zero for real estate speculation and excess, and it highlights Miami’s ongoing urban revitalization, fueled by people, builders and investors returning to the city center.
I don’t know if this is the bottom and even if it is, prices aren’t likely to start rising again until the dollar starts falling and inflation picks up, but this does seem to validate the idea that trying to prop up prices will just prolong things. If prices fall enough, people will buy. The law of supply and demand has not been repealed.
3. Frugality is making a comeback. Economic recovery will not come courtesy of new government spending plans. It will only come by people spending less and saving more and that is exactly what people are doing (via AP):
Fearful that economic conditions could get worse and stay that way, Americans are showing an enthusiasm for thriftiness not seen in decades.
This behavioral shift isn’t simply about spending less. The New Frugality emphasizes stretching every dollar. It means bypassing the fashion mall for the discount chain store, buying secondhand clothes and furniture, or trading down to store brands.
There’s more business for repairmen and less for salesmen. Consumers are clipping more coupons and swiping their credit cards less.
The AP story goes on to say:
That kind of scrimping may be good for stressed family budgets, but it’s bad for the nation’s overall economy — and that has the potential to reinforce the miserly mood. Yet with home prices, 401(k)s and job stability suffering, such frugality is likely to be more than a fad.
That may be true in the short run, but if you think about it for a minute you’ll see the logical flaw in this type of thinking. We are in economic trouble because we borrowed and spent too much. The obvious correction for that is less borrowing and spending. As a country we cannot consume without producing. Politicians are brow beating the bailout recipient banks to lend their government funds, but that is not the path to recovery. When one finds oneself in a hole, stop digging.
Obviously, the economy is not good right now, but neither is the situation dire. There is good news out there.