Wednesday, June 29, 2011

They're Everywhere

Babies.  Everywhere you go lately it seems someone just had or is about to have a new addition to their family.  This is expected around this time:  serious, investigative research (of the google variety) shows October 5th is the most common birthday.  You can understand the timing but lately it’s so pervasive you almost wonder if it’s contagious.

Babies have many benefits to many people: not only are they great news for the families they belong to but they are also great for the economy (bonus: benefits carry though the short-, medium-, and long-term).  Babies require spending that goes on to induce consumption in all areas of the economy.  Some short-term spending gains include healthcare, and retail sectors such as furniture and clothing and apparel (assuming it is not all imports, bad).  The cherry on top: Baby showers, aren’t they a boon for Babies ‘R’ Us?  They really get you.  Planning for a baby is as big a production (if not bigger) than planning a wedding (with an engagement of 9 months).  For the friends, the only difference between a baby shower and a bridal shower is that “bingo” becomes “babyo.”

Another “baby bump” to the economy that is great, especially right now: the tendency for the expecting families to need bigger houses.  The housing market, as those of us home owners know, is still down for the count.  But maybe this year’s crop of babies are the answer we’ve been looking for.  Data released today shows pending home sales are up 8.2% in May over April.  Coincidence?  Maybe.  (Spring also happens to be a popular time to move in general because the weather is nicer and school is ending for the year, but let’s put that aside for now.)  Yet even with such a large gain, it fails to offset the (revised) 11.3% drop in pending home sales in April.   This also comes after data released last week shows existing home sales fell 3.8% in May (and by 15.3% over last May) and new home sales fell 2.1% in May (though have been relatively stable over the past year).  Can we count on the impending baby boom to pick up some more slack here?  Let’s hope so.

Perhaps it is also this year’s crop of babies that have helped to stabilize home prices (or home values for you homeowners) over the last few months.  An index of home prices for the top 10 and 20 major cities released Tuesday indicates in April home prices increased (albeit slightly) for the first time in 8 months.  Again, though, more baby power is needed.  Seasonally adjusted, prices were flat (0%) in April.  Further, prices are 33% below their 2006 highs (we are at 2003 levels), and average prices have increased by less than 2% from their 2009 lows.  To be fair, prices may have been artificially inflated and we may not see 2006 prices back for a long time.  But still, more babies may imply more home sales (or bigger – more expensive homes) and higher prices (values).

So it turns out babies can be productive and help create value in our economy even before they are born (who said they had to finish school to start making a real contribution?).  And this adding value thing is important work.  Perhaps then we should cut them some slack.  The next time we hear a screaming baby in the store, in the restaurant, or on public transportation, we should remember the value they bring to the economy in the short-run and to our wallets in the long-run.  Or at least have ear plugs handy.

(National Association of Realtors, Standard & Poor’s Case-Shiller Home Price Index)

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