Tuesday, January 27, 2009

U.S. Shock Continues: Home Prices at Record Low; Consumers Still Not Confident

Sources: Financial Times, US House Price Freefall Continues; New York Times, Home Price Index Fell Again in Nov.

For the twenty-eighth consecutive month, Standard & Poor’s U.S. home price index in twenty of the largest metropolitan areas in the U.S. fell in November, down 18.2% from the prior year. At the same time, consumer confidence fell in January to 37.7% (down from 38.6% in December 2008).

Since the housing market peaked in July 2006, home values have fallen 25%, and analysts say the market is “nowhere near” bottoming out—so the drops are likely to continue. November’s decline is the sharpest year-on-year decline since records began in 1968—the median home price was $175,400, down 15.3% year-on-year. But analysts say that November’s drop was not as bad as they expected.

The continued drop in home prices have brought bargain hunters back to the housing market, resulting in an increase to 6.5% of home sales in December (though still down 3.5% from last year). Some analysts predict that sales will continue to rise over the next year. While gasoline and energy prices have gone down, unemployment is at 7.2% and could top 9% by the end of the year. Americans are finding their retirement accounts are depleted, and still-rapidly-falling home prices all make the U.S. economic crisis still very real.

Questions for Discussion:
It is now clear that falling home prices are one of the initial causes of the current financial crisis. What can stop home values from falling? Should the government do something? Or is there a more market-based approach that can stop the hemorrhaging?

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