From the Centre Daily Times:
The big question for the U.S. economy now is whether we will make it through 2007 without a recession. Most of the top economic forecasters are predicting a “soft landing,” which means the economy will slow but not so sharply as to cause a recession.
But almost all of these same experts failed to forecast the last recession, and they missed the stock market bubble — the largest financial asset bubble in history. And most of them also missed the housing bubble until it began to burst. So it would not be prudent to rely solely on their forecasts at this time.
The timing of any downturn is not easy to predict. But a recession is likely, because of the enormity of the housing bubble and the impact of its collapse. Recall that our last recession in 2001 was caused by the bursting of a stock market bubble of about $7 trillion. The housing bubble is comparable in size — about $5 trillion at peak. And the bubble wealth is much more widely distributed: most Americans still have most of their assets in housing and little or nothing in stocks.
As this housing wealth disappears, people cut spending. We have already seen an enormous drop in the amount that people borrow on their homes, from $600 billion in 2005 to about $350 billion for 2006.
It was this borrowing, enabled by soaring house prices that allowed people to borrow more against the value of their homes that fueled the U.S. economic recovery since 2001.
Housing construction and sales are also a big sector of the economy, currently about 6 percent of GDP. If that falls 30 percent to 40 percent, as it has in previous downturns, that’s a drop of about 2 percent of GDP.
The recession caused by the stock market bubble bursting, which lasted only from March to November 2001, would have been a lot worse if not for the enormous demand created by the housing bubble. So what will rescue the U.S. economy from the collapse of the housing bubble?
It’s not easy to imagine what that would be. Personal savings rates are already negative, a phenomenon not seen since the Great Depression. How much can consumers borrow on their credit cards?
http://money.cnn.com/popups/2006/moneymag/bestidea_2007/2.html
Best idea for home buyers
It’s a buyer’s market. Drive a hard bargain.
Real estate in 2006 turned a corner – and not a good one. In the past year, home prices have dropped 2.2%. In this kind of a market, once you’ve found the house you want, start the bidding at least 15% below the asking price. Barry Miller, a broker and owner of Denver-based Buyers Only America Realty, says that’s the average discount his clients are getting.
Paying a buyer’s agent an agreed-upon fee, if you can in your area, makes sense as well. Having a negotiator who is working for you will probably lead to a lower price.
Other ideas
Buy from a builder. Many homeowners will wait out the bust. Builders can’t afford to. Besides a lower price, many are offering thousands in upgrades. Skip the stuff and ask the builder to buy down your mortgage rate. That’s worth more than any perk in the long run.
Get a second opinion. If you are still not sure you got the best deal, spend $350 to hire your own appraiser. Often the appraiser brought in by the lender is motivated to inflate the price so the bank can make the largest loan possible. If your appraisal comes in at less than the agreed price, renegotiate. And if the seller won’t budge, walk. You can find another house.
– Stephen Gandel, Money Magazine senior writer