Newly released data show that home prices across 20 major metropolitan areas fell 1.3 percent in October from September, the third straight month-over-month drop. Many economists expect the decline to continue into at least next spring, erasing most of the gains made since prices bottomed out in early 2008. “This looks like a double-dip [in housing],” according to David Blitzter, chairman of the Standard & Poor’s index committee. “Somebody who thought last year that it’s going to be straight up from here was wrong.”
For every dollar decline in housing wealth, consumers reduce spending by about a nickel in the subsequent 18 months, according to Mark Zandi of Moody’s Economy.com.
Falling housing prices, then, while not necessarily derailing a recovery, can mitigate one.
Whether the housing market will recover by 2012 is unclear. But we do know this: objective economic conditions will largely determine Mr. Obama’s political fate. If the economy continues to struggle and stagger — if housing prices continue to fall, if unemployment continues to remain high, and if growth continues to be sluggish — the president will find himself in a perilous situation. And all the talk about his “comeback” and how successful he was during the lame-duck session of Congress will evaporate like the morning mist.
Many people forget that when unemployment was above 10 percent, Ronald Reagan — the Great Communicator — was deeply unpopular and considered by many Americans to be out of touch, dogmatic, and easily defeatable. He won a landslide re-election in 1984 because in 1983 the economy took off like a rocket. If it hadn’t, the Morning in America theme would have been a bust.
This doesn’t mean that other factors beyond the economy won’t come into play in 2012. Presidential elections are decided by a cluster of things; some of them are objective conditions, while others have to do with subjective impressions. ObamaCare will continue to be a focal point of attention. And events we cannot now anticipate will arise; how the president responds will matter a great deal.
Still, the optics of how the president ended 2010 — whether he has regained political momentum or not — will matter hardly at all. The political narrative will shift dozens of times between now and the 2012 election. And as almost every president before him has discovered, Mr. Obama will find that the state of the American economy will play a significant, and perhaps a decisive, role in his re-election prospects.