Goldman argues that the current housing bust really isn’t that big a deal, at least when you benchmark it historically. Compared to previous busts in the Netherland and Japan, Goldman thinks, the current downturn will be mild. Prices are so far down 11%, with Goldman economists forecasting an eventual 30% to 35% when all is said and done. But that’s far from the worst housing decline we’ve seen.
The biggest decline in price terms was the Netherlands which posted a 50% decline in prices in the early 1980s, Finland at 49% and Japan at 44%. Together with slumps in Sweden and Spain, these are considered the “Big Five” crashes and were accompanied by banking crises, saw significant public bailouts, had fiscal costs ranging from 4% to 24% of GDP, and caused great economic damage.
There is one big difference, however. European and Japanese consumers were not levered to the same extent that American consumers were–and still are. They weren’t using the inflated equity in their houses to fund unsustainable spending binges. So when those bubbles burst, consumer spending didn’t tank as much as it eventually might here.
Business Insider Emails & Alerts
Site highlights each day to your inbox.