Fresh Data Shows Cooling Housing Market

Oh great. Now it'll take even longer for all the subsidies, tax breaks and public financing poured into Portland's condo farms to see any kind of return on investment.... if at all. Good to know Smart Growth advocates have influenced local governments into gambling on the housing market with tax dollars.

If the market really gets bad, I'm sure the CoP, PDC and Metro will just raid more funds from basic services and education to keep Homer Williams and his ilk from going under.

I almost feel bad for everyone that bought a house in the last few years. In my neighborhood (which I now have no prayer of ever buying in) has seen housing prices quadruple since I moved in 4 years ago. This is with no major improvements to the area. The housing market has been overinflated for years. Inflation is out of control. Our dollar is worth half of what it was when Bush came into office.

Over here in Central Oregon, the only "booming" left in the housing market is the sound of self-inflicted gunshots.

By way of an example, today, doing some of my work as an Appraiser, I saw a bare land listing in one of our newer recreational destination resorts had a $69,000 price reduction. - One lot down $69,000!

The housing market looks like it hasn't slowed down so much as perhaps has gone off a cliff.

So, why is this important to the average person who is not buying or selling right now? Because, the refinance of houses created the money that fed the economy the first 4 years Bush was President. I don't recall exactly how many Billions went into the economy from refinance, but this one factor alone was the major part of the economic expansion (e.g. transfer from middle/lower classes to the rich) of the last few years. Without refinance money, with failing mortgages, things don't just get worse for a few - this one will affect everyone.

My little viewpoint on the world tells me this is going to be a bad one. I was around for the stagflation in the 1970's, and this is shaping up to be much worse.

Jeff writes:

"Jim, I was trying to track down another stat on Oregon (failing to do so, I left out Oregon analysis altogether): what's happening with higher ed tuition? I noticed that PSU is hammering out-of-staters, but that's all I could find. Has Oregon made some strides on keeping tuition growth in check, or am I dreaming?"

As a recently retired PSU prof (and also a parent of a 2000 UO grad), I can tell you that higher education tuition is just as out of control as health care costs. PSU's tuition has not stabilized yet, although some effort has been made to keep the rate of increases down. What has happened is that PSU (and most of the other schools) have made some significant (and expensive) changes to the tuition structure that make it appear that tuition is growing less rapidly than it really is. In the past, full-time tuition provided a "corridor" so that once you hit 12 credits of course work, you'd paid maximum tuition unless you exceeded 18 credits. This allowed students to max out their credit hours at 18 and, if possible, graduate in a reasonably timely manner. Over the past three or four years, the corridor has been phased out and full-time "status" begins at 12 credits (that is, you'll be treated as a F/T student with all privileges that apply), but full-time tuition is charged by the number of actual credit hours you take. The tuition is more for 13 credits, more still for 14, 15, 16, 17, and 18. So, when OUS talks about tuition "freezes" or "slower growth", they're referring to the 12-credit rate. Higher ed is still collecting a premium from every student who exceeds 12 credits. And, as you know, taking 12 credits per term would require a student 5 full academic years to graduate rather than 4. So, while I'll be the first to applaud the Governor's efforts to slow the growth in tuition, I'd be really interested to see how they propose to lop a full year off the cost of going to school.

Jim

I know our mayor in Springfield is working hand in hand with the Governor on keeping the economy going down here. It is my understanding that they are pretty good friends and have enjoyed some good successes, i.e. Royal Carribean Cruislines, I-5/Beltline Interchange project, Symantec, etc. I also hear there is an annoucement coming today regarding Hynix semi-conductor and that the mayor worked with the Governor and his staff on the Korea/Japan Trade Mission that apparently has resulted in a major investment.

I will also agree if it weren't for the homebuilder's the first 4 years of Bush's administration we would have been a a serious economic downturn.

While I'm sorry to hear bad economic news like this, I'm keenly curious to see how the Republicans who have been trumpeting their management of the economy will spin this. Surely six years after this administration took office and almost as many since their party took control over both chambers of Congress, they cannot plausibly fault the Clinton administration or congressional Democrats.

Lucy got some s'planin' to do.

It will be a very good time to ... "Save it for a Rainy Day."

Almost everyone I know who is making a living selling nonessentials such as craft and art work has (unless they are selling to the elite few)taken a cut of 30% to 50% over the past 4 years or so. It is even worse for the buskers and street entertainers in Portland. Most people just don't have money to spend like they used to. It's no wonder with nearly flat or lowering wages and the skyrocketing costs of health care, energy and education. If the housing boom and refinance money injection stops too, yep, I think we're really in for it.

Bush wasn't the reason housing prices shot up over the past few years, and he isn't the reason that price appreciation is finally coming off the boil. Blaming Bush for whatever happens in the next few years is like blaming Clinton for the dot-com bubble (or the Y2K scare). I am truly dismayed by the culture of victimization (or loss of personal sovereignty) that progressives are so quick to embrace. Y'all ever heard of bootstraps?

If you want to be angry with somebody, Greenspan is a more apt target than the U.S. President (and he had infinitely more impact on the economy). Despite the economic impact of September 11th, Hurricane Katrina, and rising energy prices, the U.S. economy continues to grow. Job creation is weak by historical measures, but we are still creating new jobs, and the unemployment rate is one of the lowest in the world.

Our economy does not reward inaction or the failure to improve your skills and/or move to where the jobs are being created. You do not have a constitutional right to become wealthy: many more will try (and fail) than will succeed. We are able to pursue happiness (as defined by each individual): nobody is guarantee to achieve it. That isn't George Bush's fault.

If you think Capitalism is bad, ask the Russians what they think about Communism. And compare the standard of living of an impoverished Russian pensioner with the standard of living of an impoverished American Social Security recipient. Compare the 18-30 year old French Maghreb with a recently arrived immigrant from Mexico or Puerto Rico: who has more economic opportunity? You don't read much about the crush of illegal immigration into Russia, or about the rising educational achievement and business ownership of the Maghreb. Mmmmmm?

now, now, mister tee, we all know that the fed under greenspan was just another political branch of the republican party. from the consumption tax social security "trust fund" payroll tax increase, to the hedonic (and other structural) adjustments to the CPI, to the asset bubbles and on to his successor "helicopter" ben's inflationary policies, it has all been political.

i'm not complaining or really even surprised; our monetary system has been broken since the late 70's, but monetary policy is just one factor. the bush republicans are responsible for our fiscal, social and trade policy. to sum those up: tax cuts for the rich, increase spending on politically connected corporations and digging a dry hole in iraq war while cutting spending on education/healthcare/etc, kill the dollar and build more factories overseas but make sure to protect favored industries (pharmaceuticals, sugar, lumber, steel, shrimp, etc).

the good news is that in a market oriented capitalisht system that has gone global (such as ours), the government can never really control business cycles.

Steve,

i think refinancing pumped not just billions, but trillions into the economy.

Yes - the economy is slowing, its natural. The good economy that the Repubs take credit for has been on the back of home mortgage equity, hardly sustainable. The only hope is that the Chinese start to buy our goods or land, companies, etc. The have $1 trillion in US dollars that they are sitting on. Where is the next economic boom going to come from? Is economically-Illiterate Hillary Clinton going to give us a blue sky economy? HAHA-

Hungry? Eat you Japanese car -

Jeff,

I haven't researched this nearly as thoroughly as you have, so maybe you can bring some light to a question:

During which economic expansion did the lower and middle class increase their wealth or income at a faster percentage rate than the top 5%?

Jeff,

I appreciate the topic you've brought up and assume that there must be some economic expansions where the middle class and poor have seen proportionate increases in wealth and income as compared to the wealthy.

Folks… Oregon’s economy continues to lag behind the rest of the country with poor growth and high unemployment. Of 36 counties in Oregon, 25 are economically distressed or seriously distressed (see http://www.econ.state.or.us/stats.htm ). One can’t pin this on any one person or party. For better or worse, environmental policies over the past 30 years in Oregon have taken family wage jobs in timber, agriculture, and fisheries out of rural Oregon counties to the point that we now have high poverty levels, drug abuse, and the social consequences in rural Oregon. The government sponsored re-training of these displaced rural workers into server jobs has not helped these people make a living or improve Oregon’s economy. In rural Oregon we now have people in lower paying private sector jobs supporting higher paying public sector jobs (again see http://www.econ.state.or.us/stats.htm ). The high tech forest in Washington County never materialized to the point of supporting the rest of the state. And now we have demographic trends such as in Central Oregon; where retirees are moving into new homes in Bend and Redmond and pushing infrastructure, local employment, and the economy to the point of unsustainable levels in rural Oregon. This is not a Republican or Democratic issue, it’s the consequence of policies that shut down rural Oregon’s economy by not allowing these people to make a living as they once did, and not having sustainable economic alternatives available to those people. Many have had to move to Portland or other regional cities for work, or take State government jobs to remain in their rural homes. You can imagine how rural Oregonians feel about the policy changes that have disrupted their lives and livelihood. As reported in the Oregonian, this is why rural Oregon as turned from a strong Democratic stronghold to a strong Republican stronghold over the past 30 years. I have discussed this issue and trend with many rural county officials and they’re concerned that in the near future there won’t be any sustainable economic base to support schools or services in our rural Oregon counties. The recreation and tourism based economies that Portlanders seem to want in rural Oregon just won’t support these counties. So, for what it's worth... Oregon is now faced with the reality that the Portland economic engine (what there is of it) will need to continue to support (i.e. subsidize) economically poor rural Oregon with government jobs and services - through redistribution of tax dollars - for the foreseeable future as unsustainable economic opportunity in rural Oregon continues to be squeezed. I hope the answer isn't 25 more state or Indian casinos on Oregon...

I am a frequent visitor to a very small town where my wife's family owns a wheat ranch. Over the past 35 years she and I have watched in horror as the economy in her home town has declined to the point where virtually all the businesses have closed, the schools are starving for funds to provide a basic education, and the local food banks are overrun with the rural poor. Virtually all of the best and brightest young people move away immediately after graduation from high school, and many of those left behind end up involved in negative lifestyle choices including alcohol, drugs, etc. There are no simple solutions since rural economies depend on a lot of factors including the federal farm policies, global trade, enviromental policies, agribusiness practices, etc. The point I would like my friends in Western Oregon to remember is that there are a lot of people in Oregon who are not prospering as part of the current boom. State wide tax and spending policies should be designed to help all Oregonians, not just those of us lucky enough to live and work in the 3 or 4 economic hot spots in Oregon.

Thanks for the cogent and pragmatic comments, JC!

To the rest of you partisan hacks... It's worth remembering that Clinton signed NAFTA into law, and Vice President Al Gore one of it's most outspoken supporters. Remember how they derided Perot and his "giant sucking sound" of jobs going to Mexico. Well I voted for Perot, for the record.

Quoting wikipedia: "His most dramatic domestic move was the radical reform of the welfare system in 1996 in cooperation with Republicans who had taken control of The House of Representatives."

You may recall that JFK was a big proponent of reducing the capital gains and income tax.

Oh well...no reason to get bogged down in facts. I'm sure that Oregon's 6th worst in the nation unemployment rate is all Rumsfeld and Cheney's doing: they just hate tree huggers. It couldn't have anything to do with all those Democratic Governors, or the stranglehold the Democrats have over most administrative and rule making bodies. Nope: it's all part of the Republicans "crush the Blue States" strategy. Carry on.

Maybe Bush will be the only president to be in office during two depressions! Awesome!

And here I thought the president had little effect on economics. Things look a bit different now.

GO BUSH! BUSH 2008

The Clinton Recession was well underway when Bush was sworn into office in January 2000. And September 11th would have produced a similar economic impact irrespective of who was in the White House.

We haven't had a depression since the 1930's (although the Carter Administration was certainly depressing). Nevertheless, it still doesn't meet the criteria of an economic depression.

he Clinton Recession was well underway when Bush was sworn into office in January 2000.

Actually, the "Clinton recession" started right after Bush was elected almost six years ago. There were several points during the Clinton presidency when things looked like they were heading for a recession. Unlike Bush, Clinton did something to prevent it, rather than encouraging it so that he could blame it on his predecessor.

Hey Tee, You seem like a sharp guy. Why don't you tell me what it going to happen if China calls in all that American debt that they've been buying? Remember under Clinton when we had a surplus? Then we were attacked and Bush gave us all a big tax cut (mine was about $200 what was yours?) to spur the economy. Then he started a big war that costs us what, 3 billion a week? Now each American owes over $30,000 when they are born...sort of like a birth tax. Bush has borrowed more money than all the Presidents before him combined. China sure likes buying our debt. Explain that Tee. Tell me how if Clinton had been in office he would have given the wealthy a tax cut, started a war that we can't pay for and sold our kids out to China .

Garret, your tax cut was low because you obviously don't pay very much in Federal income tax. Those in the bottom 50% of tax filers pay only 3.5% of the total income tax. Those in the top 5% pay 54% of the total income tax

http://www.e-quadnews.com/index.php/m/articles/id/123/t/Higher%20Incomes%20Bear%20Biggest%20Tax%20Burden

It's my opinion you shouldn't have received a tax cut at all.

And I'd sure appreciate if Clinton defenders would quit lying about the supposed budget surplus. When you include supplemental spending packages, interest on the existing debt (which is part of the budget) and other after budget expenditures there never was a surplus. Our national debt has increased every year since Reagan. This Clinton "surplus" contention is patently false.

I had a typo above: Bush wasn't sworn into office until January 2001.

The Clinton Recession started in March of 2000 (remember Nasdaq 5,000?) as evidenced by the mounting losses on Wall Street: from March 30, 2000 (the top) to the January 20, 2001 swearing in ceremony, the NASDAQ declined more than 40% (compare that to the October 1929 to December 1930 decline of a 43% and you begin to understand the historic context). Federal personal income tax receipts peaked in the 1st quarter of 2001 and unemployment rates were on the rise: the recession was most certainly underway before Bush was sworn in, but it would take several months for the data to be compiled and analyzed.

As Professor Emeritus John H. Hoagland (Michigan State University) wrote in letter to BusinessWeek: The recession should not be called either the "Clinton recession" or the "Bush recession." The recession should be known for what it was, i.e., "the Y2K recession." In 1999, fears of Y2K disruptions caused much overbuying of electronic equipment plus extensive disruptive stockpiling of purchased inventories and other items. Those actions overexpanded and ballooned many 1999 trends, which were subsequently reversed in 2000 and 2001. The result was the Y2K recession.

East Lansing, Mich.

In related news the Bureau of Economic Analysis at the U.S. Department of Commerce announced the U.S. GDP grew at a 2.9% Year on Year rate in the 2nd Quarter of 2006. That's not a recession.

Ross: you're a jackass if you actually believe the mere inauguration of George Bush caused a recession. Don't think of the U.S. economy like a jet ski: it doesn't just zip back and forth from growth to recession. It's more like the world's largest cruise ship: it takes a long time to change directions.

Garrett: U.S. Treasury bonds are similar to IOU's; however, they cannot be "called" by the purchaser of the bonds (only the issuer can redeem them earlier than their maturity date). The Chinese, Saudis, Japanese, and others buy U.S. debt because they regard it as the most secure sovereign credit risk. The dollar is the de facto reserve currency of the world: when the world is going to hell in a handbasket, foreign governments would rather own U.S. Treasury bonds more than anything else (except gold). Our superpower status provides our currency with a permanence that cannot be found anywhere else. Russia could destroy Switzerland, Britain could invade France, and Iran could occupy Saudia Arabia in a matter of weeks or days. Not so with the United States. The strength of our economy (not to mention multiple carrier battle groups, the most lethal nuclear arsenal, and the worlds most capable Air Force and submarine fleet) provide security that simply cannot be found elsewhere. You can resent that fact: I celebrate it.

If the Chinese quit buying our bonds, we may have to pay higher interest rates to induce them (or other buyers) into the market. If that fails, then we could devalue our currency to reduce the actual "value" of the outstanding debt. A devaluation of that magnitude, or military defeat, would adversely impact our ability to access world capital markets in the future.

the mere inauguration of George Bush caused a recession.

Not hardly. It was his election and that the first words out of his mouth predicted an economic recession that tanked an already shaky economy. That really inspired confidence that he was going to take charge of things didn't it? I think people underestimate the power of "exhuberance", rational or not, in driving economic growth. It was a shock, after years of optimism from Presidents like Clinton and Reagan to hear this new one trashing our immediate economic prospects.

or military defeat,

A military defeat will have no impact on the issue at all. We lost in Vietnam, we lost in Somalia, we lost in Lebanon. Its only when a defeat has some consequence that it matters and the United States has the military power to defeat any enemy of any consequence even if it can't end a local Iraqi insurgency of little consequence to us.

A devaluation of that magnitude ... would adversely impact our ability to access world capital markets in the future.

Not to mention create enormous inflationary pressures and destroy a lot of the value of people's retirement savings. Sort of what happened in Germany in the 1920's, actually almost exactly what happened in Germany except the money they owed were war reparations.

But the reality is we are the Chinese largest market. They are loaning us money because we use it to buy stuff from them. That can go on for a very long time as long as our economy continues to grow along with the debt. And it is in China's interest for our economy to remain strong to buy their stuff and protect their investment. The danger is that our economy doesn't grow as fast as other countries and we slowly lose our importance to China along with our ability to pay the interest on the growing debt. At that point we may not have control over the devaluation in the dollar.

The inflated housing market in one regard can be seen as the kind of mechanism that would lead in that direction. Homes values increasing, people taking that equity and using it to buy stuff from China. The cost of purchasing a home is now much higher and the money used to pay those extra costs bleeds out of the country.

The dollar is the de facto reserve currency of the world

That is largely because oil prices are tied to the dollar. But there is a move under way to create an oil market in Euros. The real value of the dollar is the relative stability of the US economy and its close ties to most of the rest of the world's economy. If the rest of the world economy does well, while the US economy is struggling that will be the end of it as the world currency.

Hey, but I'm not an economist. So I could be wrong. Well, even if I was an economist ...

Chris: you seem to imply that wood products companies are inclined to cut down every tree until they achieve their own demise. Nothing could be further from the truth.

The tree farmer, the private landowner, and the integrated wood products companies have much greater incentive than the Sierra Club or the Natural Resource Defense Council to harvest in a sustainable and responsible manner. If they don't, they go out of business. To suggest their inevitable demise was only 5-10 years away is pure horseshit. To quote an old bumper sticker: Every Day is Earth Day if you're a Farmer.

Instead, you will see more catastrophic wild fires and more pervasive pest infestations in timber country that is off-limits to the wood products industries to "protect it". Protect it for what? Wildfire? Beatles? The Biscuit Fire is one such example.

,.

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If they don't, they go out of business.

No, they don't. They just move somewhere there are still trees to cut, especially as their local mills age and recquire new investment.

The un-employment rate was released today. 4.7%. This entire year has seen the un-employment rate below 5.0%.

Un-employment runs in cycles that follows the general economy. See that attached US Bureau of Labor Statistics

The information from the link above show that the un-employment rate has been falling (trending lower) for 24 years now. It is doing so without regard to who is President or which party is in power.

The economy is fine, even if the housing sector is getting soft. The tech bubble that peaked and started down in the last year of the Clinton presidency (Nasdaq hit 5000, the peak, 9 months prior to Clinton leaving office) did not create a depression. The housing slowdown won't either.

Has anyone noticed that the Dow Jones Average is back over 10,400?

Most good finance professors (at even the most liberal of universities) will tell you that the stock market leads the economy by 6-9 months.

Jeff, instead of trying to scare everyone, take a look at the facts, not the headlines.

You may also want to give Jenson Hagen a heads up as his scare piece a couple of months back market the bottom.

The tech bubble that peaked and started down in the last year of the Clinton presidency (Nasdaq hit 5000, the peak, 9 months prior to Clinton leaving office) did not create a depression. The housing slowdown won't either.

You may be correct, but the two are completely unrelated. For one thing the amount of equity in the housing market dwarfs the Nasdaq at its peak. For another, the housing market is much more highly leveraged than the Nadaq. Limiting high margin stock purchases was one of the reforms implemented after the '29 crash.

The truth is no one knows what will happen with the housing market because we have never seen anything like the nationwide increases that have occurred over the last few years. We have never had interest rates reach the lows they did during that time. We have never had so many homeowners with variable mortgages at low rates. Nor so many who became homeowners with such a low initial investment. Nor such large amounts of money pulled out of home equity and spent on consumer purchases over an extended period of time.

I think it is important to realize that the Nasdaq peaked and then declined many times during the Clinton administration. It just that each new peak continued to exceed the previous peak. That stopped under Bush and I don't think either the Nasdaq nor the DOW have provided a return on money invested when Bush was elected.

It is doing so without regard to who is President or which party is in power.

That is simply not true. In 1980, the year Ronald Reagan was elected, the annual unemployment rate was 7.1, when Clinton was elected in 1992 it was 7.5, when Bush was elected in 2000 it was 4.0. The annual umemployment rate declined every single year from 1993 to 2000 while Clinton was President. It went back up the first three years under Bush. Last year, in 2005, it was 5.1. BLS Annual Unemployment Rates.

That pattern of Republican presidents raising unemployment and Democrats reducing it has been a pattern going back to at least the election of Eisenhower. In 1952 unemploymnet was 3.0, in 1960 it was 5.5, in 1968 it was 3.6, in 1976 it was 7.7, in 1980 it was 7.1, in 1992 it was 7.5, in 2000 it was 4.0. I don't have the statistics for unemployment when Roosevelt took office in 1932, but I suspect it was considerably higher than 3.0 and considerably lower than it was in 1920 when the Republicans won the White House.

So for the last 85 years it is pretty safe to say that unemployment rates have always had a net decline while Democrats were in the White House and always had a net increase under Republicans. Its doubtful that pattern will change under this administration.

Ross:

When trying to determine causation of increasing/decreasing employment, you assume there is no lag effect. Meaning, you presume the guy in office when the employment rates change is the guy responsible for that change. That's pure economic fiction. You also ignore the widely accepted view that economic cycles occur without regard to which political party is in the majority or living in the White House.

Euphoria leads to irrational investor behavior (whether it's tulip bulbs, beanie babies, NADAQ stocks, "investment" properties", or precious metals). This euphoric perspective (it only goes up in price) eventually leads to a sharp price decline. Why? Simply put: the greater fool effect exhausts the supply of fools, and rapid price declines coupled with increasing supply leads to (at best) a normalization of expectations, and (at worst) panic.

That said, a 30% to 40% decline in residential real estate values over the next 3 to 4 years doesn't necessarily lead to recession. Unlike a correction in the equity markets (which can begin and end within several months, the average duration of a housing market correction is 6 years (the last one was 9 years long in California). While a protacted decline in housing prices will lead to many bank repos and personal bankruptcies, it is still a relatively small number of people who are directly impacted. Most of us will continue to live in our homes and make our mortgage payments: we bought our homes to live in, not to flip for a quick profit.

Anybody who is unable to meet their mortgage obligations will be forced to refinance (assuming they have any equity), or sell the property for less than it was worth 6 months ago. Eventually, the declining prices and excess supply bring new buyers into the market who simply need a place to live, and aren't terribly concerned about how much their home is likely to appreciate in the near term.

you assume there is no lag effect.

Isn't it a little unrealistic to suggest that the "lag effect" lasted 12 years, for instance, in the case of Reagan and Bush. We are talking about the net change over the entire time a party held the White House, not a few months after they took office.

My guess is that what we are seeing is that people who want to become prosperous vote for Democrats. People who are already prosperous vote for Republicans. The Democrats make people prosperous and then they vote like Republicans.

Euphoria leads to irrational investor behavior

Where is the line between optimism and euphoria?

It seems quite clear to me that optimism helps the economy because people invest in the future when they are optimistic. A new President who tells everyone that doom is at hand is not helpful. That is especially true when there are already signs of weakness. Remember "We have nothing to fear, but fear itself." Does anyone really think Roosevelt was trying to give an objective assessment of the situation?

That said, a 30% to 40% decline in residential real estate values over the next 3 to 4 years doesn't necessarily lead to recession.

That depends on how much current economic activity is driven by the housing market. It appears that a very large amount of consumer purchasing power has been financed through home equity. In addition, there is a major part of the economy that is driven by home building and home improvements that depends on continuing growth in equity for financing.

If I recall the numbers correctly, and I may not, a decline of 30 to 40% in home values would put a majority of home owners who have mortgages under water. That is, they would owe more on their house than it was worth.

In nearly every market outside the midwest (and even many larger cities there), a 30% decline represents the price appreciation that occured over the last 18-36 months. In some of the most overvalued markets (Las Vegas, Sacramento, Phoneix, San Diego, Coastal Florida) prices appreciated 40% to 50% in the last two years.

So yes, if you bought a house in the last 18-36 months without a down payment, you could be "upside down" (owe more than the current market price) for the next few years. That said, you shouldn't have purchased that house if you couldn't afford to own it for a few years while making the mortgage payment. The flippers (who never planned on occupying the home, and can't rent it for anything close to their monthly costs) will defintely get burned. My advice to them: the first loss is the best loss.

It seems unlikely that 1/3 of all homes were purchased in the last three years.

But even a hundred thousand "extra" personal bankruptcies for each of the next few years won't cripple the economy. The large (mostly publicly owned) homebuilders will simply see their build rates drop back to their pre-2002 levels, and their largest expenses (land acquisition, building materials, and labor) will all decrease.

That's the point I was trying to make earlier: nearly everybody who invests in stocks (directly, or in retirement funds) does so to increase their wealth. Most of us live in homes because we need a place to live; not because we plan on doing a cash-out refi every three years. The home equity as ATM machine racket was a short term strategy: paying for consumption through borrowing doesn't work very well at the retail level. The U.S. Treasury is able to do so because of the power to levy taxes, and the likelihood that (as our economy grows) we are able to service the debt without a problem.

If you really want to worry about something, consider the possibility that a protracted period of slow growth, coupled with an energy supply crisis, could force the Federal Government to increase taxes from now until the last baby boomer retires. Then, assuming the economy were to contract further, we could go into a fiscal flat spin, wherein it is impossible to maintain the current Social Security and Medicare benefits without radically increasing the taxes on corporations and wage earners, or looking for new sources of revenue (trade war, anyone?). HIGHER TAXES BEGETS SLOWER GROWTH, WHICH leads the liberals to raise taxes even further, which begets even slower growth.

Alternately, we could have class warfare, where party lines are blurre, and loyalty to your generational interest group are all that matters (don't tax him, don't tax me, tax the fellow behind the tree).

a 30% decline represents the price appreciation that occured over the last 18-36 months

I don't think that is true. Remember a 30% increase followed by a 30% decline results in a net decline of 9%.

That said, you shouldn't have purchased that house if you couldn't afford to own it for a few years while making the mortgage payment.

But that is really irrelevant to the effect on the general economy. You shouldn't have bought stock on margins in 1929, but a lot of people did. And the damage was hardly limited to the people who made that mistake.

HIGHER TAXES BEGETS SLOWER GROWTH,

Not really. It depends on who makes more productive use of the money to stimulate the economy, the government or the people taxed. If the government takes money people were going to spend while on vacation in europe and spends it on early childhood education there is little doubt that there is a huge net benefit to the US economy form the increased productivity and reduction in social problems that investment will create. If the government takes money people were going to spend on their own education and lets Halliburton swindle them out of it with inflated costs in Iraq then there is a net cost to the US economy.

The battle over taxes bwtween liberals and conservatives has nothing to do with taxes impact on the general economy.

Conservatives cut taxes for the rich and cut services to the middle class. Which they in turn are forced to pay for, often at a higher price than government could provide the service. Education is the obvious one here. We cut taxes on the rich and charge middle class kids to play football and higher colleg fees and tuition. The net effect of these kinds of tax cuts on the economy is probably negative to the extent kids end up with less education and less productive workers.

Liberals tend to place higher taxes on the wealthy and use the money to invest in ways that stimulate the economy. You can argue about which investments have a net benefit, but the argument that "higher taxes begets slower growth" as a universal maxim is patently false depending on how the money is spent.

Of course, the flip side of "tax and spend democrats" is now "borrow and spend Republicans". But in fact, the Republicans haven't really been borrowing all the money they have been spending. A good portion comes from overcharging wage earners for the current costs of social security and "borrowing" it for other purposes. The result is Republicans have been using an extremely regressive tax on workers wages as a major source of federal spending.

Finishing that ...

The use of social security taxes to fund other government services transfers the cost of those services from the progressive income tax on all income to a flat tax on wage earners. And given the cap on social sercurity wages, its actually a flat tax on all be the highest wage earners.

Of course, real deficit spending where government spends more than it collects in taxes, as opposed to the phoney social security debt where government taxes workers wages and then "borrows" the money, does stimulate the economy. But it can also lead to rampant inflation.

What we truly should be afraid of is that the price of homes reflects actual inflation. That it is only the ability to buy cheaper goods manufactured in low wage economies that has prevented that inflation from showing up in most manufactured goods. That it is the manipulation of oil production by OPEC that has kept the cost of oil relatively low. In short, inflation is not out of hand despite our deficits because other countries have absorbed the extra dollars created by the Republicans' massive deficit spending over the past 25 years.

Ross,

you are such a partisan, kool-aid drinking, Clinton worshipping hack that any discussion with you is like talking to a gold-fish.

You don't come close to making your point or backing it up with information.

It would literally take hours to respond to each of your incorrect points.

<h2>Ross, make sure to support Hillary as it is your only chance of seeing blue-dress Bill back in the oval office.</h2>