The housing boom has been an enormous boost to the U.S. economy....spurring construction, increasing the net worth of millions of families and allowing Americans to borrow against the rising value of their homes.
In the last three years, from 2002 to 2004, homeowners who refinanced their mortgages took out $400 billion in extra cash which was pumped back into the economy. Mark Zandi, chief economist at www.Economy.com, a forecasting firm in West Chester, PA, says the housing surge accounts for nearly 40% of the U.S. economy over the past two years.
The question is how much damage will the upcoming housing downturn inflict on the economy and the price of your home?
A study of regional U.S. housing bubbles by Friedman, Billings, Ramsey & Co., an Arlington, VA brokerage firm, found that in the period from 1987 to 1994, bubbles in 42 metropolitan areas lasted anywhere from one to 31 quarters. Median house prices subsequently fell by as much as 39% but in some areas, like San Diego, Santa Barbara and San Jose, they didn't fall at all.
Edward Leamer, an economics professor at the University of California Los Angeles, thinks a housing downturn could "kick the economy into slow growth and possibly an outright recession." He counts 10 declines in residential investment since World War II. Eight of them, he says, provided the early warnings for recessions.
For more on the bursting of the real estate bubble, go to: http://home.att.net/~coachthee/whats_new/index.html
Source: The Wall Street Journal, August 17, 2005