Tuesday, May 27, 2008

Home Sales and Gas Prices - The Market is Working

New home sales for April were up 3.3% while prices took a big drop of almost 15%. US Highway miles driven dropped 4.4% in March, the first March deline since 1979.

What does this mean for the economy? It means the market is doing its thing. For home sales to get healthy again, prices are going to have to fall a lot more, perhaps another 15%. Bad news for sellers, great news for buyers.

On the gas front, the numbers show that we are not incapable of cutting back on fuel usage. There is a limit to how much people will spend on fuel. This is a reality the fuel producers are going to have to deal with.

In a free market, the world doesn't come to an end when prices get high. We find work-arounds and alternatives. It can be inconvenient and frustrating, but inconvenience and frustration smells like opportunity to an imaginative entrepreneur. As long as we are free to innovate, we'll be fine.

The main danger looming out there is government "assistance". It is an election year. If politicians can't help mucking with the market for political points, the mechanisms that allow us to adapt can be severely hampered.

Pain hurts, but it's a necessary symptom to highlight a problem. It goes away when we change our behavior. It's masked and prolonged when we swallow government "pain killers". Hopefully, we'll be well into recovery before the government can "help".

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