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Goldman's Grim Outlook

Written By Brian Hicks

Posted November 28, 2007


After spending the last two years writing and talking about the housings bubble in these pages, even I’m sort of taken aback at how quickly it all seems to be unraveling now.

Here’s another one from Goldman that you shouldn’t read before you go to bed.

Because if Goldman is right-and they are now where I’ve always been-you can not only kiss a big part of your home equity goodbye, but the value of your dollars also.

From Reuters by Herbert Lash entitled: Housing slump ups chance of recession: Goldman Sachs

"The housing slump has increased the chance of a U.S. recession and will further weaken home prices, Goldman Sachs Group Inc  said on Tuesday, cutting its stock  recommendations on a slew of companies vulnerable to sluggish growth.

In a grim assessment of the U.S. economy’s health, the investment bank said the Federal Reserve will have to cut its lending rate to banks by 1-1/2 percentage points to 3 percent in the next six to nine months to avert a recession.

Weakness in construction and consumption will likely shave 2 percentage points from real U.S. economic growth in 2008, and will likely increase the unemployment rate to 5.5 percent from the current 4.7 percent, the U.S. investment bank said.

The effect of a U.S. housing market that is "mired in a full-blown vicious cycle" suggests the risk of recession has risen to a range of 40 percent to 45 percent, Goldman said.

Home prices will likely decline by 15 percent from their peak. But if the United States enters a recession — which Goldman expects the economy to narrowly escape — home prices could fall as much as 30 percent nationwide, it said."

The wave continues to build.