April 26, 2002

The American Dream is alive and well. The residential real estate market is the one investment area that has boomed during and after the recession. Reading the financial press, it seems that we ought to be thankful to the real estate market for saving the economy. The strength of the housing market has been credited with contributing to the mildness of the recession. On the employment front the argument is that new-home sales and the corresponding new appliances that go with the new homes have produced numerous jobs in the economy. Employment in the broadly defined real estate sector of the economy is there for all to see and we do not have a problem with this argument. The subtler argument related to the wealth effect is the one with which we have a problem. Presumably, the appreciation of owner-occupied home prices has, through the wealth effect kept consumers spending during the recession. In our opinion real estate is getting more credit than it deserves. (full article attached)

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