Saturday, May 28, 2011

Housing Prices Are Plain Scary

The continuing decline in home prices could mean that 50% of mortgages are under water by some point this year.  Deflation remains a much more serious threat to our economy than inflation.

The near depression the world experienced in September 2008 had its roots in the collapse of American housing prices that peaked sometime in 2006 or 2007, depending on the price index one uses.

The rescue of the US economy from collapse has been a remarkable success, but US housing prices, the root of the economic threat, continue downward. 

Falling house prices pose a real threat to economic recovery and argue strongly against the austerity, root canal economics in such vogue today.

The latest data come courtesy of the Federal Housing Finance Agency and show that prices fell another 2.5% in the first quarter of 2011.

FHFA's index has prices down nationally on average by 19.3%.  Other measurements put the national decline at 30%.

Pennsylvania's prices have fallen 7.9%, and our housing market has performed much better than the nation and most other states.  By contrast, Nevada's prices are down 54%, Florida's 45%, Arizona's 47%, and California's 42%. 

Collapsing house prices vaporized huge wealth and could still plunge the US into recession or worse if economic policy is strongly contractionary.

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