Monday, April 25, 2005

After the bubble

Angry Bear has a great post outlining what housing prices will do when the current bubble pops. Things to look forward to -- a 40% decline in prices in real terms ground out over 5-8 years.

The current bubble effects mostly the coasts, which encompasses about 40% of the US population. The macro effects would include 1) rising unemployment (associated with the home building and sale industriy), 2) reduction in consumer spending (which had been fueled by mortgage equity withdrawls), and 3) a dramatic increase in foreclosures. I actually think that foreclosures will begin setting the price in markets, resulting in faster pricing declines than expected.


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