Bad News on the Home Front

And so it continues. Today the Standard & Poor’s/Case Shiller national home price index reports that home prices dropped 14.1% year over year in the first quarter of 2008. This is bad news for several reasons, but the main, macro-reason is that our economy won’t begin to improve until housing stabilizes. As much as some economists want to marginalize the sector’s importance, the reality is that they cannot.

With the housing bubble, the impact of home prices has spread into the economy at large, effecting employment, borrowing, consumer spending, and a hell of a lot of Wall Street paper.

Related to this, here is an article by Roger Lowenstein in the New York Times Sunday Magazine that has been sitting on my desk for a few weeks. I finally read it over the weekend. If you want to understand how potentially damaging the housing crisis is to Wall Street (and how it happened), this is an essential article. It is easily the clearest explanation of how the mortgage industry and Wall Street with the help of the bond rating agencies managed to put us on the brink of another Great Depression.

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2 Responses to Bad News on the Home Front

  1. foutsc says:

    It’s not bad news if you’re in the market for a house. Many people are buying who previously could not afford to. I think home sales increased last month. It is ironic that the market forces are working for ordinary Americans, but the erstwhile free market capitalists on Wall street have abandoned all hope and turned into welfare queens.

  2. Michael says:

    “Brink of another great depression”..????? NahNopeNotQuite….read a little history of what the great depression encompassed–we’re not even close. The housing market had a HUGE run-up over about a 5 year period prior to 2007, with housing prices grossly over-valued. Just like the over-valuing of dot-coms in the late 90s, a market correction HAD TO OCCUR to bring things back into a true-value balance. That is what is happening. Prior to the correction, a large segment of the workforce was priced out of the housing market by the inflated slaes prices, forcing them to lease/rent, which also drove rent prices up. With this needed correction, those folks are now finding house prices more affordable and with interest rates less than 6% (remember Jimmy Carter rates were in the mid-teens) the market forces of demand will begin to improve over time. Not to say times aren’t tight, just NOTHING ANY WHERE NEAR great depression levels.

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