Conventional Wisdom

What can a person trust? Econo-Girl was perusing the business section of the New York Times, where someone was dismissing the effects of a real estate price collapse. After all, he pointed out, only 10% of homeowners owe so much on their homes that a 'value' reduction would cause real problems for them.

Hmmm. 'Only' 10% of homeowners. Do you know how many people that is? A hell of a lot of them. And what would be the effect of their belt-tightening? Fewer goods and services sold in general.

This guy mentions that an increase in home values is really not translatable into real increased wealth unless you sell your home. True. But is that really how people have been approaching it? Haven't people been using their sudden home equity to buy, buy, buy? Yes, yes, yes.

The effects of a downturn in the real estate market will be felt across the economy. The question is, what's next? Employment is picking up, which is good. The deficit is astouding. Is there another bubble we can all get obsessed with? Readers will remember Econo-Girl's prediction that the next asset bubble is gold. She is staying with her prediction.


The Lazy Iguana said...

I have no idea what the next bubble will be, so I will just go along with your gold theory. It sounds good to me.

By the way, in South Floirda that "10%" figure HAS TO BE lowball. With the prices homes are going for now, there is no way a new buyer is going to fall outside that 10% for years - unless they have the cash to just buy the house outright.

Econo-Girl said...

I think you're right, Iggy. It will be a minimum of 30%.

Karen Cramer Shea said...

I wonder what percent of the home owners who will be effected by a value reduction are investors rather than residents.

The cycle I expect to see is as interest rates increase, investors are forced to put homes on the market because they can't make higher ajusted morgages.

Prices start dropping and then panic selling starts and then forclosures.

KOB said...

Dear Econo-Girl -- didn't see an email so hopefully you'll see this .. if you're interested, i would like to add your blog to the www.dcblogs.com/live feed? Just let me know ..