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.