“I don’t beleive that a 50% drop from the peak in real estate prices necessarily means a deep protracted recession in the general economy.”
I think it does, actually. Real estate doesn’t exist all by its lonesome. It interacts with the broader economy. In some ways it influences the economy, and in other ways it is influenced by the economy.
A 50% drop in value wouldn’t happen all by itself…it would have an effect on the broader economy and it would also be caused by things happening in the broader economy. For example, if interest rates shot up (say, a 30-year mortgage going to 10%) there would be a huge drop in real estate values, but there would be other consequences as well. A lot of jobs in lending and finance would be lost. Business capital spending, which employs a lot of people, would be decimated. Interest-sensitive stocks would be hurt enormously. Millions of people would be “underwater” on their home loans, potentially defaulting, etc.
Think of the last downturn we had in So Cal. Many people (myself included) lost their jobs and struggled to pay the bills.
I am hoping for some sanity in the market, but a 50% drop would be way too harmful for the economy.
