FILE - In this May 25, 2010 file photo, specialist Michael Pistillo, left, and traders work on the floor of the New York Stock Exchange. Everyday investors are finally inching back into the stock market. But are they too late? (AP Photo/Richard Drew, file) (AP)

Stocks up, houses down: What it means for America

The real story isn't Wall Street's bull market -- it's Main Street's bear housing market


Robert Reich
February 2, 2011 11:27PM (UTC)

This piece originally appeared at Robert Reich's blog

Put your ear to the ground and you can almost hear the bulls stampeding. The Dow closed above 12,000 Tuesday for the first time since June 2008. The Dow is up 4 percent this year after increasing 11 percent in 2010. The Standard & Poor 500 is also up 4 percent this year, and the Nasdaq index, up 3.7 percent.

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"The U.S. economy is back!" says a prominent Wall Streeter.

Ummm. Not quite.

Corporate earnings remain strong (better-than-expected reports from UPS and Pfizer fueled Tuesday’s rally). The Fed’s continuing slush pump of money into the financial system is also lifting the animal spirits of Wall Street. Traders like nothing more than speculating with almost-free money. And tumult in the Middle East is pushing more foreign money into the relatively safe and reliable American equities market.

It’s simply wonderful, especially if you’re among the richest 1 percent of Americans who own more than half of all the shares of stock traded on Wall Street. Hey, you might feel chipper even if you’re among the next richest 9 percent, who own 40 percent.

But most Americans own a tiny sliver of the stock market, even including stocks in their 401(k) plans.

What do most Americans own? To the extent they have any significant assets at all, it’s their homes.

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And the really big story right now -- in terms of the lives of most Americans, and the effects on the US economy -- isn’t Wall Street’s bull market. It’s Main Street’s bear housing market.

According to the Wall Street Journal’s latest quarterly survey of housing-market conditions, home prices continue to drop. They’ve dropped in all of the 28 major metropolitan areas, compared to a year earlier. And remember how awful things were in the housing market a year ago! In fact, the size of the year-to-year price declines is larger than the previous quarter’s in all but three of the markets surveyed.

Home prices have dropped most in cities already hard hit by the housing bust – Miami, Orlando, Atlanta, Chicago. But declines increased in other markets that had before escaped most of the downdraft, such as Seattle and Portland.

Things could easily get worse on the housing front because millions of owners are in various stages of foreclosure or seriously delinquent on their mortgages. Millions more owe more than their homes are worth, and, given the downward direction of the housing market, are going to be sorely tempted to just walk away. This means even more foreclosure sales, pushing housing prices down even further.

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So don’t be fooled. The American economy isn’t back. While Wall Street’s bull market is making America’s rich even richer, most Americans continue to be mired in a worsening housing crisis that the Administration is incapable of stemming, and of which Wall Street has now seemingly washed its hands.


Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written 15 books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's also co-creator of the Netflix original documentary "Saving Capitalism."

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