You'd never know it was a new year. Housing is still being blamed for slowing the economy, and some economists predict that housing will continue to drag throughout 2007. Yet positive trends exist, which begs the question -- are economists ignoring good housing news in order to lure money to the stock market instead?

Here's how an Associated Press article opened yesterday. "The slowdown that hit the U.S. economy will persist into 2007 as the once red-hot housing market continues to suffer through a serious correction, analysts say."

The article went on to say that "many private analysts are forecasting the economy will perform at the slowest pace in five years, a full percentage-point lower than growth in 2006."

Then the article gets confusing. It says that analyst Nariman Behravesh, chief economist at Global Insight, a forecasting firm, says that "the recession in the housing market does not seem to have had much of an impact on the consumer. The bad news on housing has been offset by good news on wages, jobs and the stock market."

Huh? Then why is housing being blamed for taking the economy down the tubes?

According to the article, "The overall economy, as measured by the gross domestic product, expanded in 2006 by 3.3 percent, many economists believe, just slightly above the 3.2 percent GDP growth of 2005."

That's hardly going down the tubes. Growth is growth, even if it's slow. Consumers, acknowledges the article, are still spending, despite record high gas prices last summer which all but took down the SUV-top-heavy American automobile sector.

But for 2007, Global Insight is forecasting growth at just 2.3 percent -- the slowest pace "since the economy grew by just 1.6 percent in 2002, a year when the country was struggling to recover from the 2001 recession."

Slower growth, of course, means higher unemployment, which will hit 5 percent from a five-year low of 4.4 percent in October. Most job loss will be in the housing sector, "construction, furniture manufacturing and sales, real estate agents, mortgage brokers -- will see more than 1 million jobs evaporate over the next two years because of the housing slowdown after five boom years for sales."

A slower job market will certainly slow the economy to the point that some economists are predicting the Federal Reserve may have to boost economic activity by cutting short-term interest rates again. That could reignite the housing boom if mortgage interest rates follow the trend.

Housing "stocks" have been hit hard by the so-called housing recession, with Pute, Centex, Toll Brothers and Lennar all giving lowered guidance for the days head, despite stronger than expected new and existing home sales and price gains in November 2006.

That's the good news for housing -- a flicker that housing might have "overcorrected."

Consumers have kept the economy afloat by spending more than they actually earn, according to Dr. Irwin Kellner, a favorite economist and columnist at CBS Marketwatch. He writes in his most recent column, "People were able to do this because housing prices were soaring, interest rates were low and many homeowners were able to extract this buildup in equity to make up the difference between income and outgo."

With homes no longer useful as "piggy banks," conventional wisdom goes that housing will continue to freefall.

But is that the cause or the effect?

Isn't the real reason that the economy may falter the fact that people simply don't make enough money?

Wall Street had a record year in bonuses, but the average American didn't. According to the Baltimore Sun, wage increases had generally lagged behind inflation since the 2001 recession. Why? Such things as global competition, executive performance-based bonuses, and the rise of health insurance costs and other employee benefits are making employers stingy.

Higher wages are considered bearish for the stock market, and the government is reluctant to slow down the record gains stocks achieved in 2006. How else to explain the failure of Congress to grant the first hike in the minimum wage in 10 years?

Just as housing was boosted by the Tax Relief Act of 1997 to provide more liquidity to the housing market, the stock market has received a governmental subsidy in the form of wage stagflation.

Housing isn't the reason the economy will slow. The reason is that people can't continue to borrow money forever.

Published: January 3, 2007

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.