Wednesday, June 01, 2005

┬┐Which of my houses should I sell first?

Hear a Pop? Watch Out - New York Times
Start with the so-called wealth effect. If people tend to spend more when their net worth increases, they'll spend less when it decreases. Economists use this rule of thumb: a $1 change in household wealth leads to a roughly 5-cent change in consumer spending. By that measure, a 10 percent decline in real estate prices would knock about half a percent off the gross domestic product.

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Adding it all up, it's easy to see how a drop in real estate prices would spell trouble for the economy. To put that in perspective, the International Monetary Fund conducted a detailed study in 2003 that assessed the potential economic impact of a property slump. Reviewing the experience in the United States and 13 other industrialized countries, the I.M.F. found that a real estate bust is far more dangerous to the economy than a stock market bust.

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