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WASHINGTON — In this age of immediacy - instant messaging, on-demand movies, online shopping - it's worth remembering that some things still take time.
Housing bubbles, for example, can take years to deflate. Just look at Japan.
Yesterday's announcement of a $100-billion (U.S.) superfund to rescue the troubled asset-backed bond market is a powerful reminder that the cleanup of the housing mess may be nearer the beginning than the end.
Canadian banks created a similar rescue fund last month.
"Things have improved in the money and mortgage market, but they are far from being back to normal by any stretch," said economist David Rosenberg of Merrill Lynch.
Most economists agree that the U.S. housing market peaked around the end of 2005.
But it took more than two years for the credit market to react to the new circumstances, starting with this summer's collapse of the subprime mortgage market.
Those problems rippled through the banking sector, eventually leading to a freeze-up in an obscure, but vitally important sector of the credit market - the asset-backed commercial paper market.
Even after shrinking by 25 per cent since the summer, the asset-backed market is worth about $900-billion in the United States.
Consider that the trigger for all this - the unwinding of a decade-long housing boom - still has a way to go. Housing prices are only now beginning to retreat. The inventory of unsold homes, both new and existing, is still growing. And the tighter credit conditions will continue to make life more difficult for existing and prospective homeowners well into next year.
That suggests that the impact on house prices, and by association household wealth, isn't yet being fully felt. Likewise, housing starts and sales of existing homes are likely to continue to fall.
Even the most cautious economists now acknowledge that median home prices will probably fall 10 per cent from peak to trough - the first drop in U.S. home values since the Great Depression. Others, including Yale University's Robert Shiller, are predicting as much as a 50-per-cent plunge, which could drag into 2009 and beyond.
So far, median prices are down about 4 per cent.
The bottom line is that homes have become unaffordable to many Americans. Over the past decade, prices nearly doubled. Homes in middle-class neighbourhoods of major cities raced past $1-million.
Homes remain too expensive for average Americans, particularly in the heavily populated Northeast and the West, according to the National Association of Realtors' most recent housing affordability index.
Prices would have to drop by at least 10 per cent to make homes affordable again. The longer prices stay high, the longer it will take to work off the inventory of unsold homes.
A lot of the recent euphoria in financial markets is predicated on the housing slump and the credit crunch being short lived, leaving the consumer largely unaffected.
That scenario seems Pollyannaish. Americans have roughly $21-trillion tied up in their homes, or a third of their total assets.
Economist Mark Zandi of Moody's Economy.com has pointed out that, for every $1 decline in household wealth, there's a corresponding 7-per-cent drop in spending over the next two years. So a 10-per-cent house price decline could lower household wealth by $2.1-trillion, and wring nearly $150-billion out of the economy.
Now it's true that the impact of falling home prices could be offset if stocks and other financial assets continue to rise in value. Americans have about $50-trillion in wealth tucked away in financial assets.
But that's hardly a safe bet, particularly if you buy the argument that consumers are unlikely to escape the housing downdraft. Consumers represent two-thirds of the economy, and if they are affected, so too are the companies that cater to them.
So if you're looking for a counterview to all the rosy, recession-free forecasts out there, here's a contrarian view. House prices have only begun a much longer slide. And consumers may be about to take it on the chin, dragging the world's most powerful economy near, or into, recession.
Thankfully, Canada can still sell the United States its oil and gas.
Americans won't need much of all the other stuff we sell them if a recession is coming.
