Province
NEW YORK — U.S. recessions often start in the industrial heartland, but this time around a housing market slowdown on the East and West Coasts could break the pattern.
Economists fear a housing bust might spark a recession, partly by making consumers feel poorer and thus depressing their spending.
“There’s the potential for a domino effect as housing prices decline rapidly, real estate markets quickly stall, all the construction workers get laid off [and] the people who write mortgages get laid off. That can ripple through the economy,” said Robert Dye, a senior economist with Moody’s Economy.com.
California, Nevada, Florida, and some Mid-Atlantic and New England states have seen the fattest gains in home prices, and many economists say a correction looms.
“I actually think probably the most likely places to blow up in the next year are places where there has been a lot of wretched excess in the housing market,” said William Wheaton, professor of economics, at Massachusetts Institute of Technology in Cambridge, citing speculative buying.
Any weakness in over-heated Southern housing markets could spread. “The housing thing is really going to spill from the South to the North. Most of the places with a lot of speculative and investment home buying are south of the Mason-Dixon line,” Wheaton said.
But a recession also might spread accordion-style, pushing into the midwest from the east and west coasts, as their home markets slip, economists said.
© The Vancouver Province 2006