Even a flat housing market could cut growth

Even without a full-scale downturn in real estate, the dynamics of the housing market could exert a significant drag on economic growth in the next year and beyond.

By some forecasts, a slowdown in real estate could nearly halve the economy's growth rate by 2007. And though the threat of recession is generally viewed as distant, it's even conceivable that a softer housing market could set the stage for an economic slump.

Real estate sales and home construction have often bounced the economy up and down. But now, amid signs that higher interest rates are starting to cool the economy's hottest sector, there's an additional ripple effect for US consumers: less ability to tap home equity as a source of income. That phenomenon, dubbed "equity extraction," has provided crucial cash to the economy in recent years, helping consumers consistently surprise economists with their ability to keep spending. All this makes housing a pivotal indicator as the US economy enters 2006.

"It's the biggest issue for the year ahead," says Ed McKelvey, an economist with investment house Goldman Sachs in New York. "We are estimating a 1.5 percent potential hit" to America's gross domestic product (GDP).



http://csmonitor.com/2005/1209/p01s02-usec.html

The RE market is what is holding up this economy right now.
Recession is possible too.

The ABSURD increases in property values just are not sustainable. It's like a fucking Ponzi scheme. I urge everyone to think real hard about the future, get out of debt if you are in it to the extent you possibly can, start exercising some serious fiscal discipline, and think about battening down the hatches, and preparing to cocoon...expect crime to go up, too, as the economy gets worse.

If people feel poor because their houses lose value and if they're less tolerant of credit card debt, the GDP will take a big hit.