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The US Soft Landing Safety Net Scenario

Source: Economist

The current (June 8th) edition of the Economist does a quarterly update on the global housing market [Economist] [1]. After five years of bashing the housing market (some of it deserved), they actually seem to be backpedaling or at least showing less gloom and doom than they showed in 2002, 2003, 2004 and 2005. The emphasis in the analyses done at that time was estimating the rental equivalent for housing. Now with the CPI rent equivalent outed in recent media, this argument seems to fall flat.

Nevertheless, there is a lot of good stuff.

According to estimates by The Economist, the total value of residential property in developed economies has risen by three-quarters since 2000, to almost $75 trillion. The increase is equivalent to more than 100% of those countries’ combined national incomes. Countries in which house prices have gone up most have tended to enjoy the strongest growth in consumer spending as homeowners, finding themselves wealthier, have treated themselves.

Yesterday I wondered why everyone [2] is so unanimous about a soft landing, which in turn, makes me worried because conventional wisdom is usually wrong.

However, the Economist article is very insightful. Here are some of the key points addressing the US soft landing safety net scenario:

In the US, they project it would take 10 years of stagnant prices for personal incomes to catch up to the cost of housing. Thats a very interesting they make point since I belive that personal incomes outpaced housing price increases over the past 25 years or more with the exception of the past 2-3 years. Wouldn’t this suggest that more housing booms should have occurred. There is always more impetus to a boom than just personal incomes.