“As I talk with economists from countries whose housing values have risen markedly but not experienced sharp declines, I have been struck by two things. First, they are often confident that national (versus regional) house-price reductions are unlikely. And secondly, most assume that a decline in house prices would have a measured impact on the economy should that in fact occur. But the experience of Japan in recent decades and the U.S. more recently should provide some caution – given that the economic retrenchment that followed these significant declines in home values exceeded most people’s expectations.” /
“… sharp declines in housing prices can have additional negative effects, with broad implications for macroeconomic outcomes and monetary policy – broader, perhaps, than may be assumed and incorporated into most statistical models of the economy. …
(When) housing prices do fall the effect on the economy is often much greater than many people expect.
A key lesson from the past several years is that homes are not riskless investments.”
- excerpts from a speech given in Stockholm 28 Sep 2011, by Eric Rosengren, President of the Federal Reserve Bank of Boston.
[Taken from a recommended article by Ben Rabidoux, The Economic Analyst, 28 Sep 2011]
Housing is in a speculative mania in Vancouver and the unwinding of that bubble will have broad and deep negative effects on our economy and our society. – vreaa
Sorry for OT… From Mish
They disappeared in China, but where will they show up?
“A key lesson from the past several years is that homes are not riskless investments”
“Key” quote. Understand what that means and you will sleep well or not, depending upon your exposure to economic winds.
In this context, “key” is not to a door lock, it’s keystone — i.e. what holds up the entire gamut of arguments expounded by bearish real estate blogs. Vancouverites may not be familiar with keystones because of prevailing construction techniques, so thought I’d point it out. Google it if you need further help.
The easiest way to explain something is with a story (or anecdote if you will). Until stories about the risk of real estate enter the mainstream, the concept will not be widely understood.
Somehow, I think, central bankers would take offence to a bank economist using a story of his neighbour’s subprime woes to make a point.
Not hugely relevant to this post, but there’s an interesting discussion going on over at UBC regarding housing costs and faculty/staff recruitment and retention.
Journalists are good at telling stories, not sure why they aren’t interested? Corporate leash too tight?