By Brian Summerfield, Online Editor, REALTOR® Magazine
One of the interesting things about this economic downturn has been the debate among serious thinkers about what letter of the alphabet it would most resemble when mapped on a chart. For those of you who haven’t been keeping track, here are the four current challengers:
- The V-Shaped Recession: The best possible scenario right now, the “V” recession would be characterized by a short economic bottoming out, followed by a sharp upturn.
- The U-Shaped Recession: This would be tougher, but still manageable. The difference between “U” and “V” recoveries is that the former has a longer period of economic stagnation and a slower recovery.
- The W-Shaped Recession: In this scenario, businesses and consumers are tantalized with a budding resurgence, but the economy collapses again before it truly improves for the long term.
- The L-Shaped Recession: This would be the worst of all of these options. An “L” recession means that following a drop, the economy essentially would not grow significantly for a sustained period.
While these models are perhaps oversimplifications of the macroeconomic picture and have obvious limitations, they point to another, more important question: What will the nature of a recovery be? Will it be quick? Smooth? Bumpy? Sluggish?
Time will tell what impact the government’s combination of tax incentives, loan rescue programs, and flooding the financial sector with money will have on the economy. (For instance, some fear “rampant” inflation, which could artificially increase the value of homes and other goods and services.)
Right now, the consensus view from experts on both the general economy and the housing market seems to be that we should expect something like a “U” recession. This isn’t necessarily reassuring in and of itself — think back to what the consensus view on the economy was in early 2007.
Yet, there are reasons to be hopeful. For one thing, consumer confidence is on the rise. The dollar is actually looking stronger than it was a year ago. And the volume of home sales has been creeping up. Still, unemployment numbers and business bankruptcies should moderate any overly positive outlook.
Based on what you’ve observed, what do you think a recovery in the real estate industry and the economy will look like? And when will it come? Let us know!