“What started in subprime is likely to continue cascading into the markets and keep the economy down until 2010, economist Paul Krugman forecasts. Bottom line for homeowners: An average drop of 25%.” - Paul Krugman, Economist
Princeton economist Paul Krugman spoke with Fortune’s Jia Lynn Yang about the impact on the economy, the outlook for home prices, and the reasons for both fear and hope.
Fortune: By year-end, 15 million Americans could have mortgages worth more than the value of their homes. What happens then? Krugman: Actually, I think home prices will fall enough for us to produce about 20 million people with negative equity. That’s almost a quarter of
U.S. homes.How far do you think home prices will fall? My preferred metric is the ratio of home prices to rental rates. By that measure, average home prices nationally got way too high. We’ll probably basically retrace all that. So that’s about a 25% decline in overall home pricesCan you compare this to other economic crises the
U.S. has faced? The financial stuff looks like a combination of 1990 and 2001, and probably bigger than both combined. You’ve got the financial disruption, which is probably bigger than the savings and loan crisis. And you’ve got the loss of wealth from the housing bust, which is bigger than the dot-com bust.Can you compare this to other economic crises the
U.S. has faced? The financial stuff looks like a combination of 1990 and 2001, and probably bigger than both combined. You’ve got the financial disruption, which is probably bigger than the savings and loan crisis. And you’ve got the loss of wealth from the housing bust, which is bigger than the dot-com bust.
You’ve been saying 2010 is when we get out of this recession. How did you arrive at that date?
The last recession officially ended after eight months, but employment didn’t start to recover until 30 months later, so I think we go at least that long this time. If the recession started in January 2008, then that would mean July 2010 is the first month we have anything that feels like a recovery. But I wouldn’t be surprised if it goes longer than that - maybe into 2011.
Resources:
“How bad is the mortgage crisis going to get?”, Fortune Magazine, March 17, 2008
http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/?postversion=patrick.net
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March 18th, 2008 at 12:28 pm
[…] How Bad is the Mortgage Crisis going to Get? What happens then? Krugman: Actually, I think home prices will fall enough for us to produce about 20 million people with negative equity. That’s almost a quarter of. US homes.How far do you think home prices will fall? … […]
March 18th, 2008 at 12:50 pm
[…] DR wrote an interesting post today onHere’s a quick excerptAnd you’ve got the loss of wealth from the housing bust, which is bigger than the dot-com bust.Can you compare this to other economic crises the. US has faced? The financial stuff looks like a combination of 1990 and 2001, and probably … […]
March 18th, 2008 at 1:31 pm
[…] unknownnHResources:. “How pure is the mortgage crisis accomplishment to get?”, Fortune Magazine, March 17, 2008. http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/?postversion=patrick.net. […]