Mental Recession Redux?

By Brian Summerfield, Online Editor, REALTOR® Magazine

In July 2008, in the heat of the presidential election, McCain campaign advisor and former U.S. Senator Phil Gramm caused some controversy when he seemingly characterized the United States as “a nation of whiners” who were plagued by a “mental recession.” In other words, the economic problems of the time were all in people’s minds.

Events since then would appear to controvert Gramm’s argument. The economic troubles manifesting themselves at the time—including considerable overleveraging among major banks, increasing unemployment, and rising mortgage defaults—were not just figments of our collective imaginations.

However, in spite of his flawed analysis, Gramm may have been on to something with his concept of a mental recession. In fact, we may be heading into one right now.

According to Fed Chair Ben Bernanke’s remarks in a recent speech at the Brookings Institution in Washington, D.C., the recession is “very likely over.” That’s the good news. The bad news is that hardly anyone will be able to tell the difference.

Bernanke predicts that U.S. gross domestic product will rise moderately in the coming months, which would signal an end of the recession from a “technical perspective.” However, he also said the economy would continue to seem soft, particularly where the job market is concerned. In fact, the unemployment rate may still pass the previous post-World War II high of 10.8 percent before it starts to move decisively down toward 5 percent.

In real estate, we’ve certainly seen some positive developments during the past few months, such as rising home prices and an unprecedented streak in pending-home-sales growth. But as homes become more of a financial burden for their owners, a new wave of rate resets looms, and the commercial market continues to flounder, a palpable and justified sense of unease remains.

All of this is to say that a recessionary state of mind among consumers could linger well into a recovery that’s already tenuous for many reasons. At root, any mental recession is driven by insecurity about personal finances. Until most people in this country feel like they have good job security, manageable expenses and debt, and safe and stable assets, they will not believe in any recovery, regardless of what research reports and talking heads might say to the contrary.

Brian Summerfield

Brian Summerfield is Manager of Business Development and Outreach for NAR Commercial and Global Services. He can be reached at

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