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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (28226)	3/16/2005 12:00:21 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

There is definitely a potential negative feedback loop as RE slows down, people lose jobs in the RE related fields, and RE slows down more. I think you are making the same mistake that the authors of that article make. They are looking at the positives (ie. jobs created from the RE bubble and the positive wealth effect of rising property values) without looking at the real cost to the economy on the whole to divert so many resources to what really boils down to shelter. There is no value add to RE the way there is in money that is invested in productive enterprises. The cost of the RE bubble is that money spent there isn't spent somewhere else where it would have a more long range positive effect in the future. I see a RE decline, which would immediately cool the amount of money flowing there, as a potential net positive, not a negative even though a lot of individuals would stand to get hurt. On a macro scale it would mean that people would be forced to put their savings somewhere productive. No matter how many houses you build nx is never worth more than the existing houses. If that money had somehow flowed into something like biotech companies you have the outside chance for the investment to create something which is equal to a large multiple of it's individual parts. As each new part is added completing the missing puzzle piece needed to make the other parts work it raises the value of each individual part and the whole. You can never get that kind of value from housing which is, at the end of the day, a consumption.