Paul Krugman (NYT): Safe as Houses

[Dudley_DUright]

I used to live next door to a Russian émigré. One day he asked me to explain something that puzzled him about his new country. "This place seems very rich," he said, "but I never see anyone making anything. How does the country earn its money?"

The answer, these days, is that we make a living by selling each other houses. Since December 2000 employment in U.S. manufacturing has fallen 17 percent, but membership in the National Association of Realtors has risen 58 percent.

The housing boom has created jobs in two ways. Many jobs have been created, directly and indirectly, by a surge in housing construction. And rising home values have fueled a simultaneous surge in consumer spending.

Let's start with home building. Between 1980 and 2000, which was before the housing boom, spending on the construction of new homes averaged 4.25 percent of G.D.P. In the most recent quarter, however, the figure was 5.98 percent. That difference is equivalent to about $200 billion a year in additional spending, generating roughly two million extra jobs.

more...

http://www.nytimes.com/2005/08/12/opinion/12krugman.html

[gristy]

1. whoeeee

That's sort of the sound coming out of my mouth as I read this, since earlier today I was thinking about buying a house...

[girl gone mad]

3. I think it could get ugly...

in some places. Demand could stay healthy in other places, though. What's interesting to me is that homes in the upper range haven't really appreciated all that much, but as big loans have become more accessible, the median prices have been rising.

I'm glad my mortgage payment is small. I think a lot of people might end up walking away from those big house payments. Looks like they passed the new bankruptcy law just in time.

[idlisambar]

2. excellent editorial, recommending n/t