Sunday, January 01, 2006

Housing and the Broader Economy

This article is from the Washington Post. I think what is important about this article and others is that it confirms that a concensus has been built among most economists that the housing bubble is the most significant risk to the economy.

Snip...


"That doesn't mean the economic outlook is all sunshine and sailboats. Economists see a slumping housing market to be the biggest risk for the economy in 2006, as interest rates rise and housing supply rises to meet -- and, increasingly, exceed -- demand. Just last week, the National Association of Realtors said that the number of homes on the market rose to its highest level in more than a year. The consensus of the economists surveyed was that the number of existing homes sold will drop 6 percent to 6.7 million, and that the number of houses builders start building and the number of new-home sales will also fall.

"Clearly the slowdown in housing will mean slower growth in the overall economy," said Nigel Gault, an economist at consulting firm Global Insight Inc. "The big question mark is how much damage there will be."

The answer may depend on just how much the steady growth in recent years has depended on housing. It would appear to be a lot. Economists at Wells Fargo & Co. analyzed job growth since 2001 and found that half of the nation's new jobs have been in fields tied to housing -- real estate agents, mortgage brokers, construction workers and the like. And booming housing prices appear to be a major factor in the rapid climb of Americans' spending in recent years, which many economists argue has been enabled by cash-out refinancings, home equity loans and a sense that they need not save because their homes made them worth so much on paper."

Full article

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