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Roy Smith: Good economic news?

I am not an economist. Maybe my economic views are distorted by my dependence on farming for a living. Maybe my economic views are distorted by the fact that I live between Omaha and Lincoln. Maybe I don’t see things as they really are because the two cities nearest me have robust economies that are still growing. 

For whatever the reason, I see a positive side to this week’s news that new home sales are down 17 percent in February. My theory is that we cannot continue to build more homes year after year because there are a limited amount of resources and a limited number of people to buy the homes that are on the market. Therefore, the housing market can grow only as much as the population grows over the long term.

As a non economist I see two ways the slump in new housing sales could be good for the economy in the long term. The first is that there is less of a push to develop farm land into acreages. I have been on the county planning commission since 1975. For as long as I have been part of that agency, any small piece of land big enough to build a house on is quickly grabbed up for a building lot. However, in the last two years the practice of dividing farmland into 5 to 10 acre parcels in the rural area away from towns has stopped. In the three residential lake developments nearest me there is an abundance of building lots for sale. There has not been a new residential development in the county since 2008. That means less land taken away from farm production. Even though my farm is no longer in the expansion mode, I hate to see younger farmers squeezed out by houses. I also dislike having non farm neighbors using my land as if they owned it to ride snow mobiles and four wheelers. 

The second positive side I see to the housing slow down is that maybe the money that is not being spent on a more expensive house will be spent on paying down debt. For many years I have felt that easy credit with high interest rates would eventually lead to economic problems for those who could not manage debt. That seems to have been a big factor in the recession that began in 2008. Maybe this situation is in the process of correcting itself.    

My views on these latest economic numbers would probably be different if someone in my household was under water on a home mortgage. Fortunately, members of my family have been very careful in the management of their resources and continue to have good jobs. Timing plays a part in how this situation plays out. However, not taking on more debt that can be reasonably be paid back is an even bigger factor. We should all have learned a lesson from the general economic down turn of the last decade. 

Today, farmers are enjoying some of the best times in history. No doubt a lot of the high land prices and cash rent leases are being done with resources from profitable grain sales of the last three years. I like high grain prices as much as the next farmer. However, at these price levels here is a huge need to be cautious in managing debt. What went up can go down even faster. The adjustment for farmers could be as painful for us as the current problem is for our city friends.    

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