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Stocks up, houses down — and what this means for most Americans

Robert Reich

Put your ear to the ground and you can almost hear the bulls stampeding. The Dow closed above 12,000 Tuesday for the first time since June 2008. The Dow is up 4 percent this year after increasing 11 percent in 2010. The Standard & Poor 500 is also up 4 percent this year, and the Nasdaq index, up 3.7 percent.

“The U.S. economy is back!” says a prominent Wall Streeter.

Ummm. Not quite.

Corporate earnings remain strong (better-than-expected reports from UPS and Pfizer fueled Tuesday’s rally). The Fed’s continuing slush pump of money into the financial system is also lifting the animal spirits of Wall Street. Traders like nothing more than speculating with almost-free money. And tumult in the Middle East is pushing more foreign money into the relatively safe and reliable American equities market.

It’s simply wonderful, especially if you’re among the richest 1 percent of Americans who own more than half of all the shares of stock traded on Wall Street. Hey, you might feel chipper even if you’re among the next richest 9 percent, who own 40 percent.

But most Americans own a tiny sliver of the stock market, even including stocks in their 401(k) plans.

What do most Americans own? To the extent they have any significant assets at all, it’s their homes.

And the really big story right now – in terms of the lives of most Americans, and the effects on the US economy — isn’t Wall Street’s bull market. It’s Main Street’s bear housing market.

According to the Wall Street Journal’s latest quarterly survey of housing-market conditions, home prices continue to drop. They’ve dropped in all of the 28 major metropolitan areas, compared to a year earlier. And remember how awful things were in the housing market a year ago! In fact, the size of the year-to-year price declines is larger than the previous quarter’s in all but three of the markets surveyed.

Home prices have dropped most in cities already hard hit by the housing bust – Miami, Orlando, Atlanta, Chicago. But declines increased in other markets that had before escaped most of the downdraft, such as Seattle and Portland.

Things could easily get worse on the housing front because millions of owners are in various stages of foreclosure or seriously delinquent on their mortgages. Millions more owe more than their homes are worth, and, given the downward direction of the housing market, are going to be sorely tempted to just walk away. This means even more foreclosure sales, pushing housing prices down even further.

So don’t be fooled. The American economy isn’t back. While Wall Street’s bull market is making America’s rich even richer, most Americans continue to be mired in a worsening housing crisis that the Administration is incapable of stemming, and of which Wall Street has now seemingly washed its hands.

Cross-posted from Robert Reich’s blog.

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Comments to "Stocks up, houses down — and what this means for most Americans":
    • fred

      Gov’t Debt Jumped $105.8 Billion in January…Nothing has recovered.

      Librals pass laws then give themselves waivers to get around them, so how does that imply progressive ideas?

      The only reason Wall Street is ticking good is Obama gave all the stimulus to the CEOs to prop. it up. to fool the people and China. This has been the worst economy since Jimmy Carter.

      [Report abuse]

    • Greg Yuhas

      Were homes over priced? How do the price of homes compare to the cost of building new energy efficient ones? Is mortgage money available to qualified borrowers at reasonable cost? Perhaps the market is working. Sure, I’d like a nice new home in the Berkeley hills and a Beemer to cruise around in, but I can’t afford them and I don’t think I should ask you to pay for them.

      [Report abuse]

    • Anthony St. John '63

      I respect what you say Professor.

      As you so know best, Clinton left America hanging from the edge of the abyss at the end of his presidency, then Bush kicked America into the chasm and we are still in free fall because America has had far too many failures in leadership over too many decades during which they put “Made In American” out of business.

      We need another Washington, Jefferson or FDR to lead us out of this and Obama is the best chance we have today, unless politicians in Congress are allowed to continue to destroy American Democracy and plunder the Wealth of American as they have been doing since Viet Nam.

      [Report abuse]

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