How the Economy Can Grow While the Housing Market Crashes

There are two ways to go about cutting back on your gasoline consumption.

The cool way and the nerdy way.

The cool way is to get yourself a motorcycle. Gets great gas mileage (mine gets between 45-52 MPG last I measured), chicks dig it, and you cannot help but look cool on it.

The nerdy way is to get a hybrid. That just screams "pansy." And your mileage isn't even that much better. Reports show a little bit more around the mid 30's in MPG. And no chicks, except them kind of gray haired, aging hippie chicks with no make up who aren't interested in you as much as they are the environment.

Regardless, the drawback to the motorcycle (aside from if you wipe out your either dead or paralyzed) is that you can't listen to talk radio. Oh, I know, I'm sure there's a way, but on my motorcycle I can't, no radio. So it leaves me with a lot of thinking time on the highway as I do more than most environmentalists to cut back on my gas consumption.

The cool thing about this is that when you are working, you are not usually thinking. You are carrying out tasks. Not pondering or scheming a way to come up with a better mouse trap. Thus, this is why the majority of great ideas happen while driving on the interstate, sitting on the toilet, or laying about doing nothing in particular, which is what happened to me yesterday.

I finally figured out why the economy may be growing so great, while the housing market plummets. I was of the opinion that a recession MUST occur at some point in time or another, but now I'm not so sure. The reason why is that while the housing bubble and subsequent crash may even rival that of Dotcom Mania, it really may not have that much of an effect on the larger economy since housing for most people is an expense.

Most of us look at dropping housing prices as a bad thing as the value of our largest asset, our house drops. However, unless you're planning on selling it, its value is largely irrelevant since it is the cash flows associated with the mortgage that you have to pay that matter.

Even if you don't own housing, but rent, the same thing applies. Such a glut in the market in both single family and multi-family means there's a glut of housing no matter if your own or rent. If you own or are looking to own, your options for housing and its affordability have never been better. If you rent, you're able to negotiate landlords down and get discounts lowering your rent expense.

The ultimate end result is that people's largest single expenditure, housing, has decreased, leaving more disposable income in their pocketbooks. This in part may explain why the economy grew at 4%, consumer spending remains healthy and why consumer confidence remains high as well.

Alas, it may just be the banks, mortgage companies and real estate developers that pay in the end...exactly those who deserve to pay.