Would a housing crash cause a recession? / Marc Labonte.

Format:

Book

Author/Creator:

Labonte, Marc, author.

Series:

CRS report for Congress ; RL34244.

CRS report for Congress ; RL34244

Language:

English

Subjects (All):

Housing--Prices--United States.

Housing.

Recessions--United States.

Recessions.

United States--Economic conditions--2001-2009.

United States.

Physical Description:

1 online resource (18 pages).

Place of Publication:

Washington, District of Columbia : Library of Congress, Congressional Research Service, 2007.

Summary:

Because of its sensitivity to changes in interest rates and prices, the residential investment sector has historically been one of the more volatile sectors of the economy, as shown in Figure 3. During the housing boom, it was one of the fastest growing sectors of the economy, growing an average of 9% annually in 2003-2005. [ ... ] For the value of the mortgage to exceed the value of the house, even after prices have fallen, the loan would have to have a high loan-to-value ratio (a loan made fairly recently and probably to a first-time homeowner). [ ... ] The life-cycle theory suggests that the individual would wish to spread the consumption derived from the future income from the sale of the asset evenly over his lifetime beginning immediately. [ ... ] First, the proponents of the wealth effect tend to focus on the gains to the sellers, but the housing market is made up of both buyers and sellers. [ ... ] In the short run, a decline in economic activity via any of the four channels discussed above could lead to a slowdown in aggregate spending, but only if other sectors of the economy were unable to pick up the slack.

Notes:

Description based on publisher supplied metadata and other sources.