The Joint Economic Committee has released a report estimating 2 million foreclosures by 2009, causing $71 billion in lost housing wealth.
The report predicts that housing prices will stagnate or decline, causing more foreclosures which will depress prices further. It’s far less optimistic than the Bush administration’s estimate of 500,000 foreclosures, says the SF Chronicle.
From the Bloomberg:
“State by state, the economic costs from the subprime debacle are shockingly high,” Senator Charles Schumer, the New York Democrat who heads the committee, said at a news conference. “From New York to California, we are headed for billions in lost wealth, property values, and tax revenues.
In order for the projected 2 million foreclosures to become reality, the report said, housing prices would have to fall by about 20%.
The San Fransisco Chronicle managed to find someone even less optimistic than Schumer:
But some economists, including Jon Haveman, a former senior economist with the president’s Council of Economic Advisers, believes the committee’s findings are too optimistic.
“Things are getting exponentially worse,” said Haveman, a principal at Beacon Economics in San Rafael. Home prices “have only now started to drop. They have a ways to go.”
Haveman expects the housing slump to touch off a recession by the beginning of next year, because more than 70 percent of U.S. spending is by consumers.
“There’s been a dramatic increase in consumer spending fueled by the housing market,” he said. “Now that housing prices are going down, (consumers are) going to have to reorient their household portfolio. They’re going to have to start saving because their retirement isn’t going to come out of the house. And they have to stop consuming because there’s no more cash in their house.”
Billions in housing wealth at risk as foreclosures soar [San Francisco Chronicle]
Subprime crisis toll tabbed at $71b [Boston Globe]