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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: John Vosilla who wrote (23818)2/17/2005 6:01:02 PM
From: CalculatedRisk  Read Replies (1) of 116555
 
I'm not sure if a housing slowdown will lead to a "drastic slowdown" in the general economy. That is a key question.

I've been asking:
1) Is housing in a bubble?
2) If housing slows down (not a price crash, just a volume drop-off) what will be the impact on the economy?
3) What would be the impact if a bust followed the boom?

These are difficult questions. The direct impact of a slowdown would probably be less than 1 million jobs. And that would probably NOT put the economy into recession. However there is a multiplier effect on employment (like housing suppliers and local restaurants seeing a drop-off in business) AND there is the question of loss of consumer spending (if Americans are really using their homes as ATMs).

I think Volcker implied that the ATM aspect is accurate when he said: "Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."
Former Fed Chairman Paul Volcker, Feb 11, 2005

Also, perhaps the housing "bubble" is more widespread than you think (just more so on the coasts). The recent FDIC report shows that the "boom" encompasses about 40% of the Nation:

"Our count of 33 boom markets in 2003 is the highest witnessed at one time during the past 25 years—1988 ranks second, with 24 booms. Moreover, the 2003 boom markets account for roughly 40 percent of the nation's population base, contributing to the impression that this is a nationwide phenomenon."

SEE: calculatedrisk.blogspot.com

Finally, I'm not sure of what to make of the Australia and England examples. Perhaps, as RE initially cools, money diverts to the stock market. In Australia and England the housing slowdown has not impacted the general economy - at least not yet - so the stock market has been a decent investment.
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