The economic impact of foreclosures

It was no surprise that one of National Association of Home Builders (NAHB) major advocacy issues discussed at the Board of Directors meetings last week in Orlando was home foreclosures and their continuing significant negative impact on the housing market and economy.  We are all well aware of the impact of short sales and foreclosures on property values.  But there’s more to the story.

At one of the meetings I attended, NAHB’s Chief Economist, David Crowe, noted that for every $100 loss in the value of their property, consumers spend an average of $3 to $5 less.  The estimated loss in property value in a result of the housing crash is $6.5 trillion dollars.  That’s $6,500,000,000,000. If my math is correct (I’m not use to working with such large numbers), the loss in property value has resulted in a drop in consumer spending of between $195 billion ($195,000,000,000) and $325 billion ($325,000,000,000).

The U.S. Department of Commerce Bureau of Economic Analysis recently reported thatU.S. current-dollar GDP increased 3.9 percent, or $561.2 billion, in 2011 to a total of $15,294.3 billion.  So the drop in consumer spending equates to a decrease of between 1.3% and 2.1% in U.S. GDP.

According to Andrew Abel and Ben Bernanke, every 2% decrease in GDP results in a 1% increase in unemployment.

So home foreclosures and short sales impact much more than property values.

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