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Xenophage · 06-02-2005, 10:22 PM

here is another good article that i just found

http://biz.yahoo.com/bizwk/050601/nf...480_db042.html

MASHED IN MASSACHUSETTS. That's why economists -- even Federal Reserve Chairman Alan Greenspan -- are worrying lately about "froth" in the housing market. It's not that they expect home prices to plummet across the country or mass foreclosures to ruin banks (although, if things were to get really bad, that's a possibility in some regions). Rather, they see that an almost inevitable retrenchment in home price appreciation will act like rain on the economy's real estate-fueled parade.

"Housing has been a huge support for the economy ever since the 2001 recession," says Dean Baker, co-director of the Center for Economic & Policy Research, in Washington, D.C. "If the housing bubble bursts, it basically flips in reverse." If people lose jobs and can't pull cash out of their homes by refinancing, they will also feel the need to save more. While increased savings is a good thing over the long run, it can slow the economy in the short run.

That's what happened in Massachusetts in the early 1990s, when the economy slowed and tech companies that had spurred regional economic growth retrenched. Peter Cohan, a management consultant and author in Marlborough, Mass., remembers his angst in 1992 when, expecting his second child and wanting a larger home, he put his house on the market, only to find it was worth 10% less than he paid for it four years earlier. He and his wife decided to stay put, adding onto the house instead. The value of the house didn't return to the 1986 level until 1995, he says.

06-02-2005, 10:22 PM
Xenophage Registered User Industry Role: Join Date: Oct 2001 Posts: 12,122	here is another good article that i just found http://biz.yahoo.com/bizwk/050601/nf...480_db042.html MASHED IN MASSACHUSETTS. That's why economists -- even Federal Reserve Chairman Alan Greenspan -- are worrying lately about "froth" in the housing market. It's not that they expect home prices to plummet across the country or mass foreclosures to ruin banks (although, if things were to get really bad, that's a possibility in some regions). Rather, they see that an almost inevitable retrenchment in home price appreciation will act like rain on the economy's real estate-fueled parade. "Housing has been a huge support for the economy ever since the 2001 recession," says Dean Baker, co-director of the Center for Economic & Policy Research, in Washington, D.C. "If the housing bubble bursts, it basically flips in reverse." If people lose jobs and can't pull cash out of their homes by refinancing, they will also feel the need to save more. While increased savings is a good thing over the long run, it can slow the economy in the short run. That's what happened in Massachusetts in the early 1990s, when the economy slowed and tech companies that had spurred regional economic growth retrenched. Peter Cohan, a management consultant and author in Marlborough, Mass., remembers his angst in 1992 when, expecting his second child and wanting a larger home, he put his house on the market, only to find it was worth 10% less than he paid for it four years earlier. He and his wife decided to stay put, adding onto the house instead. The value of the house didn't return to the 1986 level until 1995, he says.