I would think that the biggest impact on this real estate cycle is employment, at least in So. Cal.
We had Bill Clinton pass the no capital gains tax on $250k for individuals and $500k for couples and rates were decreased. That was the shot in the arm.
Then we had the tech boom and dotcom jobs. When that bubble burst, we had job losses. Manufacturing, outsourcing, tech, telephone sales, etc. etc. We already compete w/those who will work for less from neighboring countries.
Then what really pushed the real estate boom was the free money, I agree. It was the domino effect from that b/c it created jobs overnight: realtors, brokers, loan officers, appraisers and the endless list of construction jobs. All these jobs paid pretty well and that trinkled back into the economy in the retail sector, Home Depot, Lowes, into restaurants. People homes went up in value. The increase was equivalent and correlated to how low the interest rate was, the teaser rate, to be exact.
This false equity was taken out by people and cars were purchased and credit cards were paid off (and run back up again) and trips were taken and trillions were pumped back into the economy.
I understand all this. With the slowing of real estate, the factor that will really hurt the most is the job losses. Service and tourism related jobs don’t pay that well. Good paying jobs require retraining/schooling – time.
The stock market bubble burst quickly. You can sell stocks immediately. Even though some were reluctant and held on until the company went under. Real estate takes time to sell, dragging this out further.
Yet economists are predicting by the end of 2008 the market will stablize. I don’t know what to think anymore or who to believe. My head is spinning.
