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construction bubble (개인)자료용 글들

Up up and away: the current construction bubble won't float in the economic atmosphere forever. When it bursts, only the lean dealers will survive

The home construction market has not only held its ground during this recession, it actually has zoomed. The question now is how long the boomtown will last.
Home prices have increased between 6 percent and 8 percent nationally for the past three years, and there has been record growth in mortgage refinancing. On the surface, this indicates the economy will regain post-recession momentum and resume slow but solid growth by the end of the year.
Over the past few months you've probably come across many variations on this theme in news media; however, it's unlikely that the writers and analysts providing the current optimism will be taken seriously long-term. In fact, there are some fairly frightening economic trends surfacing that threaten to negatively affect building materials dealers across the United States.
No doubt, the housing market helped to prevent the U.S. economy from falling into a deep slump. That's thanks to the resilience of American consumers who continued to spend throughout last year--even after the corporate sector suffered its deepest recession since the Great Depression. You probably know why: There was a surge in home prices coupled with Federal Reserve interest rate cuts. Some may even argue that the Fed's cuts in themselves caused the increase in home prices. Clearly, rising home prices and lower interest rates have made Americans feel richer. However, like the Dutch tulip of the early 1600s and the Internet of the late 1990s--it is an illusion.
The Vulnerable Economy
Two-thirds of Americans own homes. The gains and values of those assets have encouraged a steady increase in consumer spending, largely supported by refinancing and borrowing against that property. This should be a good thing because at the bottom of the economic food chain lies consumer spending--where the buck does indeed stop. However, a problem arises when consumer spending arguably can be traced to a corresponding increase in consumer debt. If that debt as a percentage of one's asset base increases (and given it's an asset that is not liquid), then the problem is compounded. Also, when a homeowner's debt increases but the value of the home decreases at the same time, it limits the consumer's ability to borrow money based on the value of the asset base--in this case, the home. Indeed, debt is fixed, while asset values are not.
If asset values drop or debt increases in a declining market, ah economic bubble develops, and eventually it can burst. In residential construction, it could bring down one house at a time, affecting the entire housing industry, and perhaps even the economy as a whole.
Are we headed for a deeper recession? Probably not. Are we headed into a weak housing market? Almost certainly. Is there currently anything fundamentally wrong with the economy? No.
Still, whenever weakness at major economic pressure points does not affect consumer spending, the economy risks a downturn. Right now the economy is vulnerable because interest rates on 30-year mortgages fell from a peak of 8.7 percent in May 2000 to a low of 6.5 percent in November 2001. Moreover, short-term interest rates are at their lowest levels in 40 years. Even Fannie Mac and Freddie Mac have developed an active secondary market in mortgage-backed debt, and in doing so they have helped to hold down borrowing costs, increasing home affordability. As a result, refinancing reached record levels last year, even as the economy slid into recession.
According to Douglas Duncan, chief economist at the Washington, D.C.-based Mortgage Bankers Association (www. mbaa.org), mortgage refinancing over the past year spurred U.S. homeowners to take out at least $80 billion in equity. From that total, he estimates, they spent $50 billion and used $30 billion to pay off debt. It's that extra $50 billion in consumer spending that has kept the economy from sinking. (To put that number in perspective, $50 billion is about the same size as President Bush's 2001 tax cut.) The current spending literally has been borrowed from the future. And, as a consequence, consumer debt levels have reached an all-time high, creating the economic bubble.
The Bubble Theory
How is this likely to play out in the future? As interest rates rise (and they will), housing will become less affordable and demand will slow. When demand slows, home prices will not be sustained, and in some areas they may even fail, as they are in San Francisco. As home prices stagnate, owners will not be able to liquidate their equity gains and borrow money because debt as a percentage of home value will reach disturbing heights.
Consumers will curtail spending, and some who took out large mortgages when interest rates were low may find it increasingly difficult to sustain the payments, leading to more homes on the market and further price declines. Worse, some households may be forced into foreclosure, which means banks and other lenders will be guarded when it comes to lending money to custom home builders and their customers, speculative home construction builders, remodelers, and many others who purchase from lumber and building materials suppliers.

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