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The Housing Recovery Bodes Well for Utilities

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As the nascent recovery in the housing market gains momentum, it will boost demand for utilities, which will flow through to their rate base -- and eventually their stocks

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If President Obama does win re-election in November, it won't be because of an improving jobs market. It may be, he'll owe his victory to a far more important indicator of US economic health: rising home values.

Unlike most other countries, the average American's wealth has long been tied to real estate. And at no time was that more true than immediately prior to the last decade's crash in the housing market.

Initially triggered by the wave of defaults among subprime borrowers, the real estate bubble's implosion eventually depressed housing values 50% and more in many areas. What had been a vital store of wealth for the American consumer suddenly became an insurmountable financial burden, as home equity swung negative. Many homeowners found themselves unable to afford to sell their homes and move, as they owed more than their property was worth.

The crash in the US housing market was the key catalyst for the Great Recession of 2008-09. And it's been the primary drag on dozens of industries since then, ensuring the past three years would be the most anemic economic recovery in memory.

Like every great catastrophe, this one has had a couple of salutary effects for long-term economic health. One is simply debt reduction. According to the Federal Reserve, household debt as a share of after-tax income dropped from well over 130% in the last decade to about 113% this summer, the lowest level since 2003.

Consumers still aren't spending as they were in the past decade. But less debt as a percentage of income means they certainly can once the mood improves.
No positions in stocks mentioned.
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