By all indications, housing is heading for a double dip. The dramatic fall in new home and existing home sales in July along with the increase in the inventory of unsold houses will almost certainly be followed by a new decline in housing prices in a few months' time.
A double dip in housing will add yet another drag to an already weakening economy, further eroding consumer confidence and precipitating a new round of bank failures. In this sense, housing is a leading indicator -- of another recession.
But that does not mean that housing can or must lead an economic recovery. Housing will only recover once more jobs are created and unemployment begins to decline, for we now have moved from a bubble-driven housing crash to an unemployment-led housing decline.
Indeed, job creation is the key to a sustained economic recovery, and therefore must be the administration’s and Congress’s highest priority. The best way to create jobs and support economic growth would not be another stimulus program heavy on tax cuts but a multi-year infrastructure investment program that gives businesses the confidence they need to expand their work forces and to make long-term new investments in plant and equipment.
One study estimates that each billion dollars of spending on infrastructure can generate $1.6 billion in economic activity and create on average 18,000 jobs directly and indirectly. If all public infrastructure investment created jobs at this rate, then just $200 billion in new infrastructure spending annually would create enough jobs to put the economy back onto the path of full employment.