President Obama and many of the nation’s top economists entered 2014 predicting a breakout year for economic recovery. However, troubles in the housing sector indicate that there will be more economic difficulties confronting Americans and that several more years of mediocre growth lie ahead.
Residential construction only directly accounts for 3 percent of America's GDP, however, the vitality of the new and existing home markets importantly influences the economy in other, indirect ways.
Home prices significantly impact consumer confidence and household balance sheets, and in turn, these determine American's inclinations to spend at the mall, visit new car showrooms and power broader growth.
An exceptionally cold winter in much of the country this year has discouraged prospective homebuyers. Traffic in new home showrooms, the number of housing starts, and new and existing home sales are all way down. But subzero temperatures and snow can hardly account for all the chill gripping the market these past several months.
For many reasons, housing sales and prices may never fully recover to pre-crisis levels. The simple truth is that the U.S. housing market and the country's broader economy are now permanently downsized.
Since 2001, the economy has created only 30,000 jobs a month, whereas at least four times as many are needed to keep up with population growth.
An historically staggering number of American men -- one out of six men between the ages of 25 and 54 -- are without jobs and many are without any prospects of gaining meaningful employment.
At the same time, many young college graduates are stuck in low wage, dead end positions and many others are only working at jobs with part-time employment.
Wages are stagnant or falling, and too many young people are saddled with huge student loans that will take a decade or more to pay off.
Like the rest of us, many young graduates are also burdened by government-mandated higher health insurance costs and rising taxes.
Consequently, although homes remain reasonably affordable as measured by household income, the disposable income available to young people who want to enter the housing market has dramatically diminished.
So far, the housing recovery has been helped considerably by speculators scarfing up foreclosed homes, foreign investors looking for safe havens for capital, and the small percentage of Americans who have done well—and often are able to put up considerable amounts of cash.
Further exacerbating these problems, the Dodd-Frank financial reforms have needlessly made mortgage lending by small and medium sized regional banks more difficult and costly.
Mirroring the fact that the recovery is creating neither enough jobs for new graduates nor wage gains for older, middle class Americans, the housing market is not seeing really broad-based gains.
According to the widely watched Case-Shiller Index, home prices are still 20 percent off their 2006 peak, and it may be the end of the decade before that lost growth is regained.
Those downward pressures on prices are replicated across the economy. For example, many manufacturers, restaurants and other service businesses aren't able to raise their prices much.
The only industries where prices and salaries are rising strongly seem to be those with generous government subsidies and government sanctioned monopoly power—for example, health care, higher education, cable television, and Wall Street banking.
It's not likely that the U.S. economy will tank, but economic growth is also not likely to match the president’s optimistic aspirations. That won't happen until the policies embraced are other than compulsory health insurance, ever larger education loans, higher taxes, indulging politically-connected monopolists, and excessive government regulation.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland.