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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: J_Locke who wrote (73060)10/27/2006 2:50:44 PM
From: CalculatedRisk  Read Replies (1) of 110194
 
It's very rare that a housing bust doesn't lead to a hard landing.

The only time a housing bust didn't lead to recession in the U.S. during the last 50 years was in '66 when the economy was "saved" by huge increases in defense spending. So your "virtual" guarantee of a soft landing - the consensus view on Wall Street - is actually going against history.

A soft landing might be possible, but it is definitely not guaranteed.

The two initial drags on the economy from a housing bust will be: 1) lost housing related jobs, and 2) loss of consumption due to mortgage extraction.

Housing related jobs are still near record highs. That is about to change. Residential construction jobs track closely to housing completions - and housing completions probably peaked last month. See this graph (Starts are moved 6 months into future):



According to the preliminary GDP data, mortgage debt increased by about $250 Billion in Q3. About half was from buyers; about half from equity extraction (refinancing). As prices fall, equity extraction will most likely slow down, impacting consumption.

Maybe there will be a soft landing, but since the impacts from the bust are ahead of us (not behind us like some think) - calling for a soft landing right now might be a "Mission Accomplished" moment.

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