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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 do not 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
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