The economy won't be healthy until the housing market bottoms out. It may take another year.
On today's Planet Money, economist Mark Zandi tells us what it will take for the bust to end -- and sketches out housing's profound influence on the broader economy.
Here, for example, is what housing means for small businesses' ability to hire new employees:
Most small businesspeople when they want to get a loan, have to put up their home as collateral. And if your home is falling in value, no bank is gonna give you a loan. And if you can't get a loan, you're not gonna hire, and if you're not gonna hire, then everyone's got a problem.
And here's what housing means for local governments' ability to pay schoolteachers and other employees:
Many local governments -- and local governments are the largest employer in our country -- rely on property taxes ... the part of the economy that's losing the most jobs right now are state and primarily local governments, and a lot of it goes back to the housing bust.
If you want to know when the bust will end, Zandi says, look at foreclosures and short sales. Those typically occur at a big discount to prevailing prices, so they push overall prices down.
At the moment, almost a third of all houses being sold are foreclosures and short sales. The housing bust won't really be over until that percentage falls sharply. Zandi says that's likely to happen by the end of next year.
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