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This stunning loss of wealth has two important implications for the near-term course of the US economy. First, consumption is certain to decline. For the vast majority of families, their house is their main source of wealth. Tens of millions of baby boomers are approaching retirement without a traditional pension and very little money accumulated in personal savings or a defined contribution pension. The one source of wealth that these people had been counting on in retirement, in addition to their Social Security, was the equity in their home."
Standard measures of the size of the wealth effect from housing imply that a loss of $6tn in wealth will reduce annual consumption by between $240bn to $360bn a year, between 2%-3% of GDP. This sort of plunge in consumption would imply a severe recession.
"This means that the default rates will surely be heading upward in the months ahead as will the write-off that banks will take on these mortgages. The $250bn or so that has already been written off by the banks is just a down-payment, the big hits are yet to come."
Good article.
$80k loss per ownership housing unit? From the number Zillow posted last September, mine has already dropped $350k.
Of course I could have never got what Zillow estimated at that time anyway since the market was already slowing and their estimating algorithm had major problems.
pasa- if my home drops 350K, I'd have to pay somebody $100K to take it from me! OH NO!!!!
My property taxes are only about $2k per year, house insurance less than $1k per year, and I have no payments. I can't afford to move right now for numerous reasons. The bubble equity was imaginary anyway.
Still, it is sad; I keep thinking, "but what if I could have cashed out at the peak..."?
Azrob -
Even if one's house had negative value, there is no requirement to get anyone to "take it off your hands"; you are much better just living in it; or if a mortgage company holds a lien, let them "take it".
But the only cases I can think of for "negative value" are environmental issues for which the government holds the individual responsible, such as a gasoline or oil spill. Eventually even major amounts of Asbestos or Lead may make a property fall into this category, but so far houses with lead or Asbestos are not considered "brown fields". I'm also concerned in some areas with concentrations of Radon or other radioactive issotopes. Even mold may eventually become a long term liability issue.
Until then, most properties will not have a "negative value".
Perhaps a "percent decline" would be more appropriate than trying to attribute a fixed dollar decline for each housing unit?
Amen
That article and research is pure garbage. 6TN in "wealth" is phantom assets. What they are referring to a a decrease in borrowing. While that is a bad thing w/ respect to consumption, one cannot bank (pardon the pun) on an equity line that may or may not materialize. the "loss" is a loss of increasing rate of borrowing-based consumption. that is not a LOSS but rather an unmaterialized expectation. there is a difference.
hi dweezilzappa! welcome back doomersnightmares.
Standard measures of the size of the wealth effect from housing imply that a loss of $6tn in wealth
You can't lose what you never had!
amen.
... and, it's free and anonymous
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Wrong, then Wrong Again.
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Aldreth
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Credit Crunch Over! Everything is FINE. Move along, buy a hummer, just use your rebate check.
"The economists are telling us that everything is going to be fine. It seems that the worst is behind us. The credit crunch is over, the tax rebate cheques are in the mail, the dollar will stop falling, and the economy is now expected to pick up in the second half of the year. That is what most economists have been saying.
Of course all the economists saying this completely missed the $8tn housing bubble and most of them probably missed the $10tn stock bubble also. In other words, knowledge of the economy is not the strong suit of the expert economists who are telling us that the economy will be fine.
Here is why they are wrong, yet again. The housing market is currently in a free fall. The latest data from the Case-Shiller 20 city house price index show real prices falling at an almost 30% annual rate. This rate of price decline implies a loss of almost $6tn of housing wealth by the end of the year - that's $80,000 for every homeowner in the country.
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