by Calculated Risk on 9/26/2006 12:01:00 PM

The LA Times covers several housing topics in this article: Data on Homes Cause Jitters. Some excerpts:

... the real estate boom of the last decade has been unprecedented in size and scope, which raises the risk that the downside also could exceed forecasters' best guesses, said Eric Belsky, executive director of Harvard University's Joint Center for Housing Studies.

After any boom, "there's a tendency to predict a more gradual unwinding than actually occurs," he said.

Housing's troubles pose two main threats: one to millions of jobs directly dependent on the business, the other to homeowners' willingness and ability to spend if they feel poorer because of the trend in property prices.

About 10 million jobs are tied directly to residential real estate, from construction workers to escrow agents to the clerks at the local hardware store, Goldman Sachs estimates. That's about 7% of total U.S. employment. Some analysts believe the total is closer to 10%.

Employment tends to lag, and so far housing related employment has only fallen slightly according to the BLS.

... employment cuts overall have been modest, at least as measured by government payroll data, which don't pick up freelance workers. Payroll jobs in residential construction totaled 3.31 million in August, off just fractionally from the 3.33 million at the start of the year, Labor Department data show.

Andy Perkins, San Diego branch manager for Orco Construction Supply, said he believed that job losses were just beginning as housing projects finish up and builders find little or no new demand.
...
Goldman Sachs estimates that the housing sector nationwide could shed 1.5 million to 2 million jobs over the next several years as the industry retrenches.

And on MEW:

There also is the so-called wealth effect that housing prices have on consumers' spending.

Rocketing home prices over the last decade provided many Americans with an income windfall, either from the outright sales of houses at a profit or from mortgage refinancings or credit lines that allowed homeowners to cash in some of their accumulated equity.

A study coauthored by then-Federal Reserve Chairman Alan Greenspan last year estimated that mortgage-equity withdrawals tied to surging real estate values added $600 billion to consumers' disposable income in 2004 alone, making up about 7% of the total that year.

Using my method for calculating MEW, there was $504 Billion in 2004 (compared to Greenspan's estimate of $600 Billion). Although my method is conservative, it is the decrease in MEW that will impact consumer spending - and MEW appears to be decreasing in 2006.

The LA Times article does a good job of discussing the first two impacts from the housing bust: lost housing related jobs, and the loss of MEW and the potential impact on consumer spending. This article does not discuss the impact from excessive leverage (and foreclosures) using nontraditional loans.