May 30, 2005
If house prices collapse…
…how much will it hurt? A two-year-old study by the IMF assesses the potential damage:
[T]he International Monetary Fund conducted a detailed study in 2003 that assessed the potential economic impact of a property slump. Reviewing the experience in the United States and 13 other industrialized countries, the I.M.F. found that a real estate bust is far more dangerous to the economy than a stock market bust.
…The I.M.F. compared a 14 percent decline in real housing prices with a 37 percent decline in stock market prices - roughly the same size as the post-2000 stock market fall in the United States. The study's findings suggest that a housing crash could cause twice the damage, and for twice as long, as the last recession in the United States.
Given how frothy the market is in many parts of the country, a 14% decline may turn out to be optimistic. And a bust of this magnitude isn’t exactly a rare event—according to the IMF, such declines have happened once every 20 years, on average, in the countries it studied.
Time to remodel the RV.
Posted by Stephen at 12:43 AM in Economics | Permalink | TrackBack (0)
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