It's just about as cheap to buy as to rent housing in the United States these days, and that's a sign of the flexibility of the nation's economy, a bank investment officer said Thursday in Omaha.
Tim Leach of San Francisco, chief investment officer for U.S. Bank, said one response to the housing downturn was to convert more housing units into rentals, which helps "chew into" the excess inventory of homes. The flood of foreclosures, falling home prices and low interest rates make home purchases affordable to more Americans, whose household incomes have remained flat.
At the same time, rising rental demand is pushing up rents.
Even though the oversupply of housing is declining, Leach said, it continues to depress housing prices in most areas. "This is not a short-term issue."
Leach, who heads U.S. Bank's wealth management division, discussed the national and global economic outlook during a meeting of the Association for Corporate Growth, held at Happy Hollow Country Club.
He said he expects the U.S. economy to grow by about 3 percent or 3.5 percent this year, with much slower growth in Japan, a possible decline in Europe and growth of about 6 percent in China and 4 percent in India. Over the coming five years, he said, the emerging economies of Asia will be the primary drivers of growth — at about twice the rate of developing countries such as the United States, Europe and Japan.
Leach said inflation is not a concern because there is "very little pressure" on labor costs. But unemployment remains a "headwind" for the U.S. economy, which is adding jobs but at a rate that is too slow for healthy growth. State and local governments accounted for a large percentage of layoffs in recent years.
U.S. household debt has declined from about 135 percent of annual income to about 115 percent, he said, but hasn't approached the 90 percent level that many economists would consider normal. It could be that the current percentage has become a "new normal," he said, since consumers recently have slowed down their reductions in borrowing.
Leach said people shouldn't be misled into thinking that U.S. manufacturing is failing. Although manufacturing has declined as a percentage of the U.S. economy over the past 30 years, that's part of a natural progression of a mature economy, he said. The dollar value of U.S. manufacturing is still growing overall.
Despite China's rapid growth in manufacturing in the past few years, he said, it has just barely caught up with the actual volume of manufacturing in the United States. "We are literally neck and neck," Leach said.
Asia is likely to account for a growing share of consumer spending over the coming 20 years, he said. U.S. consumer spending should remain fairly flat, but as Asian economies grow and more people become wealthy, consumer spending there could grow as much as tenfold.
Many Americans think China holds most of the U.S. government's debt, but the actual share is about 14 percent, Leach said, with Japan a close second at 12 percent. Nearly every country in the world invests in U.S. government bonds because the dollar remains the world's "reserve currency" for trade because of the United States' economic stability.
Leach said U.S. Bank has studied the impact of U.S. government spending deficits and believes that other governments will keep their faith in the dollar for about two years after the coming presidential election, to see what direction U.S. fiscal policy will go.
If it appears that the government is not addressing the problem, he said, the dollar may begin to lose some of its attraction as the world-standard currency.
Leach said today's move to "massive new regulatory oversight for financial services" is similar to the 1930s, when the Great Depression triggered new financial regulations. Most of the latest rules have not been written yet, he said, and it could be that the pendulum of government regulation will swing too far and become "monstrous."
He said such new rules would dampen the economic recovery.
Contact the writer: