At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.
That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector.
The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value.
Experts caution that these estimates are preliminary and the total costs could get bigger still. They also note that the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock.
“There weren’t a lot of people living off their capital gains from stocks,” said Jane Caron, chief economic strategist at Dwight Asset Management. “There were a lot people using their home as a piggy bank.”
Of course, many people who bought their houses several years ago are still ahead financially, because the sharp run-up in home values is still far greater than the expected decline. Those who bought close to the peak stand to lose the most if they have to sell in the near future.
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Global Insight, a research firm, predicts that the national average for housing prices will drop 5 percent over the next year and 10 percent before mid-2009, for a total of about $2 trillion. Economists at Goldman Sachs have predicted prices will drop by 15 percent, meaning an overall decline of more than $3 trillion; other forecasters have said the decline could be 20 percent or more.http://www.nytimes.com/2007/10/25/business/25mortgage.html?_r=1&ref=business&oref=slogin