Life after the bubble
By Melissa Wirkus
News of the slowing housing
market can be found in just about every daily newspaper
and glossy magazine. Every analyst and expert seems
to have a different opinion on the state of our housing
market, but they are pretty much all agreeing on the
fact that the housing bubble has popped.
There is a tremendous amount of un-bought homes that
are just sitting on the market waiting to be sold.
Now that we have acknowledged that the market is slow,
many people are left wondering what is going to happen
next. How will the rest of the economy fair since so
many different things are related to and dependent upon
this market? Are we going to have a recession? What
about inflation?
All of these questions are important things to think
about during this uncertain time. An August 31, 2006
article by John Stepek of Money Week, “The U.S.
housing bubble has popped – what now?” looks
into what may happen in the future.
“US consumers are now the most pessimistic they’ve
been since November last year. Things aren’t looking
good for the US economy. Even The Times’s generally
optimistic American columnist Gerald Baker declared
the US house price bubble well and truly over yesterday.
And other commentators have been far more negative.”
“New York university economics professor Nouriel
Roubini goes as far as to say that: ‘Every possible
indicator of the housing sector that has been coming
out in the last few weeks…suggests that the housing
market is in free fall.’ He reckons that ‘this
may end up being the biggest housing bust in the last
75 years’ - in other words, since the Great Depression.”
Although these comments seem very pessimistic and negative,
there is definitely reason for them. At the beginning
of the slowdown, many analysts predicted that the market
would come in for a “soft landing;” and
although no one knows for sure what is going to happen,
it seems like things are only getting worse.
Many people
have been using the equity in their homes to fund their
outrageous spending habits, and this could have grave
consequences during a downturn when people do not have
as much equity as they thought they had and home values
decline.
“US consumers have been relying on the housing
market to fund their debt-fuelled spending. A housing
bust of these proportions would be ‘enough to
trigger a US recession…expect the great recession
of 2007 to be much nastier, deeper and more protracted
than the 2001 recession.’ But stock markets are
still hoping against hope that the Federal Reserve will
pull a rabbit out of its hat, just as Alan Greenspan
always seemed to do.”
Some things are looking a bit better though, since interest
rates have actually declined in recent weeks, which
is a big change from the 17 consecutive increases we
saw earlier this year.
For the most part, things are not looking so great for
the U.S. economy and housing
market in general, but only time will tell what the
future holds.