Friday, December 22, 2006

Wither housing?

Calculated Risk has a good post on the question of the hour -- to what degree will the slowdown in housing impact the broader economy?

He looks at two elements -- job losses in the construction sector, and a decline in consumer spending through reduced mortgage equity withdrawals.

As a renter, I am hoping for (and will benefit from) a major decline in housing prices, but I'm skeptical about how much that will impact the broader economy. Firstly, it is true that people in the construction sector will lose jobs, but it's not clear to me that they simply won't do other types of handyman activity. Anecdotally, it's been hard to find a repair man lately, given that they are all busy building houses, so there may be enough built up repair work to absorb them as they move out of house. Also, the people I know who are in home construction tend to have (and be able to do) odd jobs in a wide variety of industries. They probably have more alternatives than a Java engineer.

Secondly, anecdotally again, most housing driven consumer spending has been spent on... housing. People take out second mortgages on their homes to buy a holiday house, or to pay for a new extension or remodeling job. I don't know if people are cashing in their homes to buy sweaters, cars, or restaurant dinners. So I'm still not sure to what degree a housing slowdown will impact the broader economy. Certainly, people putting every dime of disposable income they can into huge mortgages is using up money that could be spent on sweaters, cars, and restaurant dinners, so if that cash is freed up (thanks to cheaper housing) it may mitigate whatever negative effects a decline in that sector has.


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