Economics - scary thought?

Question

I recently read an article quoting housing related biz accounted for %16 of our economy. While this is looking like it is going to crash, which will cause severe economic consequences. That is not the scariest thing. What is that %16 of our economy is building houses. That should be less than half a percent in a healthy economy. So the portent is even more ominious than the coming crash in the housing market. How can anybody talk about a healthy economy when such a large proportion of our economy is building, mortgages and realitors? Do you think our economy is healthy? Are you seeing more job opportunities. Where exactly are all these jobs created the Gov keeps bragging about?

The percentage was a nation wide avg, which means some areas are going to be hit even harder by the coming recession.

Answer 1

You said "Gov" but not which state, or whether you are talking about the US economy or a state economy.

Here in California, rising land prices have driven up housing costs, and the population influx makes it a huge part of the economy. This is not unhelathy as much as risky - if the housing market drops as it did in the early 90's, it could have a huge ripple effect leading to recession.

I worked for a mortgage loan company when the recession hit under the first Bush. Here is a scenario based on a true story:

Imagine you get laid off. You have to take a new job at a lower salary, but have to drive 60 miles to get there. You have a $200K mortgage balance but your home's value has dropped to $150K. The government is dropping interest rates to fight the recession, but you are locked into a fixed-rate loan.

You can't afford your mortgage payment. You can't refinance to a lower rate because the value of the home no longer supports the loan amount so no bank will write a new mortgage. You can't sell the house because you don't have the extra $50K to cover the loan. So your only option is to walk away and let the bank foreclose. You lose all the money you put into the house, and the bank sells the house at auction. Then the IRS hits you with a bill, because they consider the loss of a $150K asset combined with the loss of a $200K debt a taxable event that brought you a net profit of $50K.

That's what could happen if jobs are cut and the housing market drops. Very scary.

Answer 2

america is the most indebted country in the world. it has the biggest budget deficit, and is still ballooning.

recession will hit the working man, his mortgage, and job security most.

the next recession will depreciate the us dollar even more. it is now doing less well against the euro, and is still hagging with the chinese on revaluing the remenbi.

suppose, there is less military spending by us on the afganistan, iraq, and the need for foreign bases, it will help the economy a little more on cutting back the deficit.
spending more than income is just not sensible. revamp of the welfare system will also help.

adjustment to the interest rate is not always possible as
in past history. so far fine-tunings have not hurt the economy even with new events and hope the worst is not to come.