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Thursday, October 25, 2007

 

estimates of housing-contraction wealth fallout


via calculated risk, and further citing this report, it seems to me that the new york times estimate on the wealth decline as a result of the housing depression is probably low at $4 trillion.

a return to long term trends is likely to yield something much closer to $8tn in real terms, and any overshoot in the correction -- a very likely effect -- would go farther. without overshooting, this would constitute an average national real estate price decline of some 40%.

this first estimate of wealth destruction would deduct from something like a $45tn fixed asset base at the end of 2006, of which some $18tn is residential structures, or a real decline of some 17%. one can imagine, of course, that production will continue to add to the real assets of the economy to offset this notional decline, but the shock will be something. the last year of declines in real terms was 1991, that last recessionary period, when inflation (4.25%) outstripped dollar-figure asset growth (2.56%). but this could well be a period where the deflation of housing values sparks a credit/debt contraction that brings real wealth down at more considerable rates.

that credit-debt contraction should in fact be the most devastating potential effect.

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