The Economy and the Election: Housing and Stocks

Those folks wanting to weigh the impact of the economy on the elections next month would well-advised to place more emphasis on yesterday's reported plunge in new home prices than the recent uptick in the stock market. The basic story is simple, most people have far more money in their house than in the stock market. Of course, the reson for the fall is that house prices had gotten out of line due to a speculative bubble. The drop is necessary and inevitable (just like the 2000-2002 stock crash), but it is nonetheless painful as it occurs. It cannot be good for the party in power to have more evidence of a deflating housing bubble just before the election.

On a somewhat different topic, it looks like gas prices have turned the corner and may be on their way up again. While I would not anticipate a huge upswing, it wouldn't surprise me if gas prices are 5-10 cents higher by election day. If such a rise takes place, it may put an end to the conspiracy theories about the oil companies pushing down prices to keep the Republicans in power. Alternatively, some folks may say that it indicates that oil companies have given up on Bush.

--Dean Baker

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