How Bad Will The Bubble Burst?

With so much wealth tied up in the housing industry, a market slow-down in the U.S. could have a larger economic effect than originally predicted.
August 9, 2006, 9am PDT | Mike Lydon
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"Home prices in some parts of the country are falling. Builders are scaling back. Bubble or not, the biggest housing boom in recent U.S. history is coming to an end.

Now here is the big question: How bad will the aftermath be? At this point, most economists expect a "soft landing," a gradual decline that won't derail the nation's economic expansion, now in its fifth year.

But there is a good chance they are being too optimistic. The boom has depended heavily on the upbeat psychology of consumers, builders and lenders. As moods swing, the landing could be very hard indeed.

'We could be underestimating the dark side," says Mark Zandi, chief U.S. economist at Moody's Economy.com and among the first to seek to quantify the housing boom's broader effects. "Euphoria could turn into abject pessimism very quickly.'"

Thanks to Ben Brown

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Published on Tuesday, August 8, 2006 in The Wall Street Journal
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