Deeper Downturn

Posted by: Toddi Gutner on June 23, 2006

It’s bad news when dismal reports on the residential real estate market are revised downward. Well, that’s just what Ed McKelvey of Goldman Sachs recently did when he re-examined his housing sector estimate from his mid-January report “On Track for a Downturn in Housing (1/13/06).

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In that report, McKelvey reviewed eight leading indicators of the housing market and concluded that real residential investment would be down 6.6% next year. Now, he says, “ Housing is still on track for a significant setback; if anything, it looks deeper than it did before.” He says he expects “real residential investment to be down 9.3% next year, slicing 0.5 point off of real GDP growth before taking induced consumption effects into account.”

Reader Comments

Wes

June 27, 2006 12:21 PM

Reading the current issue of BW there was an alarming statistic. That is housing reverts to it's traditional % of GDP (3.5 vs 8 currently) that we will be in a mild recession by spring 2007. That does not bode well for the housing resale market.

Every dollar spent on housing generates a substantial welfare loss as the dollars could be going toward research and technology improvements that will benefit society a lot more than a bunch of energy-consuming, ugly suburban tract homes that don't have any buyers.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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