My thoughts on housing and the economy
- Housing activity: New Construction, Real Estate are not a huge part of overall economic activity. Which is why housing went into a depression in 2007 but economy didn't start to really plunge till end of 2008.
- House Assets are the biggest part of the balance sheets of both households and banks. Relative small change in prices can really affect the solvency of banks (Net Equity=Assets-Liabilities) especially with overleveraged banks (Net equity 2-7%)
- Recession took its toll because banks stopped lending because of their fear of bankruptcy and consumers stopped spending because their fear of foreclosure and bankruptcy.
Should housing prices stabilize, the unemployment risks will play through, but the banks and individual solvency will improve as they continue to earn income to plug their balance sheets.
What is a risk is that housing prices continue to decrease, I feel that is lower but not zero.