The Housing Scare in the United States.
The recent housing market, in the United States, has created both positive and negative effects on the economy and the people who stimulate it. The historically low interest rates that the banks are offering for home loans and the pent up demand has created a boom in average housing prices, unmatched since the early 80's (see figure 1.) . These same low interest rates have also freed up home equity (e.g. refinancing first mortgages and new second mortgages), which will in turn, increase consumerism in selected segments of the economy (e.g. automobiles, luxury products, and consumer electronics). This situation, which has eased us out of the recent recession, has created a windfall for present long-term (i.e. those who purchased their home more than a scant 3 years ago) homeowners, yet a crisis in affordability for aspiring homeowners. The inevitable and eventual upturn in interest rates will reduce this "windfall- feeling in home equity and result in a downstream reduction in consumerism and a trickle down effect that affects the economy as a whole. It can be hoped that the traditional business sector will rebound, thus creating more jobs and distribute income, which will in turn maintain consumerism. Ultimately, the creation of new jobs and a vision towards sustainable growth of varied industries will be required to avoid another recession/depression.
The recent article in Barron's shows the fluctuation of housing prices over the last number of years (see figure 1) and where we currently stand in this relatively short timeline. Those fortunate individuals who purchased their home prior to the last few years of rising home prices have benefited not only from a rapid rise in the value of their residence but also through their ability to refinance their original mortgage at interest rates that haven't been seen in over 40 years. This "refinancing- boom and feeling of "equity wealth- by these individuals have sustained a variety of consumer-related industries.
