Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (34538)	7/29/2005 11:52:58 PM
From: zcream	Read Replies (1) of 116555

The reduction in value due to a 25% fall in housing does not take into account the leverage that housing has today. There is 18 trillion worth of home equity, but a fall in housing reduces the spending on construction, and thus jobs. It reduces consumer spending far more than just the reduction in equity. Also, many people have zero equity and have taken interest only loans. When they walk away, it creates a problem for banks. I could go on, but a fall in housing prices affects MUCH MUCH than simply 25% of 18 trillion. It affects the entire financial sector in terms of defaults, income in terms of mortgage origination, jobs in terms of financial/mortgage/construction sectors, and the related effects in consumer spending when people are no longer able to extract home equity... Prices dont need to fall but can just stop increasing.. Just look at the recession in Holland over the past few years...

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