As the housing market continues to weaken it will have serious ramifications for the overall US economy. "The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession," warned a July report by the Center for Economic and Policy Research. Furthermore, Lehman Brothers report, "[A] turn in the housing market is central to our economic forecast. " As reported by the AP on Nov 11:
A downturn in housing could mean more than 1.3 million lost jobs, Goldman Sachs Group Inc. predicts, bumping up the national unemployment rate by 1 percent and the unemployment rate in house-mad California by 2 percent. Those numbers don't include likely job cuts in housing-dependent businesses, such as banking, furniture and building materials.
The Center for Economic and Policy Research predicts worse, saying a bubble burst would mean the loss of 5 million to 6.3 million jobs.
The housing run-up has financed consumer spending, creating more than $5 trillion in bubble wealth, the center estimates. Consumers have used "cash-out" mortgages to pay for everything from new kitchens to college tuition.
On August 12th and then September 29th, this blog warned about the coming recession. The current economic predicament is simply unsustainable. The double digit price appreciation of the housing boom years has come to an abrupt end. Once the housing bubble pops, a recession is almost inevitable. Here are other factors that will contribute to a future recession:
- High Energy Costs
- Federal Debt & Deficit
- Continuing Housing Bust
- High Consumer Debt
- Large Trade Deficit
- Continued Offshoring
- Security Costs
- Rising interest rates
For the past 4 years the US economic 'recovery' has been too dependent on cheap credit and the housing boom. The boom is fast becoming a bust. The convergence of the housing bust with other significant economic factors will almost certainly put the US into a recession by late 2006 or early 2007.