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Why Did Housing Prices Start Falling?
Clear-cut gauges of U.S. home prices only go back through the 1970s, but the current decline appears to exceed any price drop since the Depression, some economists say.
So why are prices down today, when by many measures today’s economy is very healthy – much healthier than that of the 1930s?
"This time, the problem with housing is not so much that interest rates became especially high... It was that house prices became especially high," says Nigel Gault, an economist at Global Insight, a forecasting firm in Lexington, Mass. "What was unusual this time is that we had such a long period without any downturn."
In actuality, all this bleak news obscures several factors that are good news for many home owners, Gault points out. Most owners are still above water, with a cushion of equity – possibly a paid-off mortgage – that outweighs the current price drop.
The performance of home prices varies greatly by region. In more than 40 states, prices are not far out of line because they have tracked the growth of personal incomes, says Karl Case, a housing expert at Wellesley College in Massachusetts.
Most owners don't have to sell, and the market should be more stable by the time they do.
For potential buyers, the housing shakeout promises to make homes more affordable in some overheated markets.
Source: The Christian Science Monitor, Mark Trumbull (08/31/2007)
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