May 31, 2009

What kind of shape is our Recession in?

I don't mean what kind of financial or economic shape this big boy looks like. I mean what kind of shape it is making on the charts.

Brian Summerfield over at REALTOR® Magazine is following this interesting debate about our economic downturn - what letter of the alphabet it will most resemble on a chart. Here are his current best options:
  • The V-Shaped Recession: The best possible scenario right now, the “V” recession would be characterized by a short economic bottoming out, followed by a sharp upturn.

  • The U-Shaped Recession: This would be tougher, but still manageable. The difference between “U” and “V” recoveries is that the former has a longer period of economic stagnation and a slower recovery.

  • The W-Shaped Recession: In this scenario, businesses and consumers are tantalized with a budding resurgence, but the economy collapses again before it truly improves for the long term.

  • The L-Shaped Recession: This would be the worst of all of these options. An “L” recession means that following a drop, the economy essentially would not grow significantly for a sustained period.

Brian says, "While these models are perhaps oversimplifications of the macroeconomic picture and have obvious limitations, they point to another, more important question: What will the nature of a recovery be? Will it be quick? Smooth? Bumpy? Sluggish?"

Que sera. Time will tell. With the government printing money as fast as they can, many economists are expecting major inflation as the economy rebounds - which will be good for home sales. During times of inflation, real estate is usually a good investment.

Brian thinks the current consensus from the experts on both the general economy and the housing market will be that we should expect something like a “U” recession.

Wonder what Generations Y and X think about that?

[where: 75230]

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