Fritz Pfister
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Another act of terrorism in America by a coward(s), this time in Boston, broke the collective heart of America. The thoughts and prayers of a grieving nation go to the victims and their families. People scratch their head wondering how this could happen? But happen it did.

While a shocked, and heartbroken nation’s attention was distracted; the economy faltered again and not just in America.

Germany had a flash crash in their stock market, had car sales plummet, and had their rating downgraded. This the stalwart of a Europe in recession. This does not bode well, for Europe is a primary consumer of American goods.

China the world’s second largest economy is slowing.

On the home front Goldman Sachs revised their outlook for the economy this year saying weak March retail sales, falling consumer confidence, and a falling savings rate was due to consumers living paycheck to paycheck following the hit to their disposable income from the 2% tax increase. Slow consumption growth would make it difficult for real GDP to grow much more than 2%.

Bank of America echoed Goldman’s sentiments stating the current slowdown in the economy is worse than expected at this stage. Thus if stocks and credit are counting on the economy to pull through the near term challenges they must believe strongly in an underlying more independent source of growth (other than QE & ZIRP) such as a housing market recovery.

Housing on the surface continues to look good, however when you peel back the layers of that onion it appears to be growing only due to bubble inducing Fed policies.

The news on building starts is a prime example. Along with permits dropping from 939 to 902 thousand in March, single family starts fell from 650 to 619 thousand.

Many will be misled because the government reported over 1.036 million housing starts. Sounds good in the headlines but the increase was due again to multi family starts. To put this in proper perspective the record for single family starts was in January of 2006 with 1.823 million. In other words single family starts are one third of the high.

What Bank of America calls an ‘independent source of growth’ I call organic. With the labor market continuing to languish there can’t be enough new family formations to add to demand in housing. All the Federal Reserve has been able to accomplish is to pull pent up demand into the market and attract investors looking for higher rates of returns.

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Fritz Pfister

Fritz began his Real Estate career in 1987 and has been with RE/MAX since 1989.