Smart Borrower Blog

Economists Predict Median Home Price Drop

Aug 26th, 2007 @ 5:58 PM by Alden Smith

For the first time ever, forecasters are predicting that the median price of homes in the US will drop. This will be the first time since federal housing agencies began keeping statistics in 1950. This phenomenon has been seen in California and the Northeast, but is the first time this has been foreseen in cities like Chicago, Minneapolis and Houston, where the increases of the last decade were modest by comparison.

This reversal is particularly interesting because many government officials and housing-industry executives had said that a nationwide decline would never happen. Prices have fallen in some coastal areas as recently as the early 1990s, but this is the exception, not the norm.

What Will Be the Effect?

Forecasters report that this market position will cause many people to pull back from investments and purchases until it corrects itself. Quoting the New York Times: “For most people, this is not a disaster,” said Nigel Gault, an economist with Global Insight, a research firm in Waltham, Mass. “But it’s enough to cause them to pull back.”

Anything effecting the market causes a ripple effect in other areas of the economy. Home sellers are being forced to drop the prices on their homes to sell them, and only people with extremely good credit can buy them. Even being in the position of having excellent credit does not always mean you can secure a loan. Mortgage brokers have seen a change in policy and lending habits change oin a daily basis, while the market seeks to find a good position.

Stealing From the Piggybank

The NBC nightly news reports this evening that what is now hurting people is that the money they have invested in their homes, called eqyuity, is disappearing. Peoiple who have bought homes for an investment are having trouble selling them, and have droipped the price so much that all the equity in the home vanishes. Home ownership at one time used to be the best single investment that a couple could make. Now, market conditions make it impossible for them to realize equity if they decide to move into a larger home. if they have bought the home to live in for many years, the effect is not so damaging.

Where Will This Take Us?

Economists are unsure as to what way the market will swing. In a way, this is probably good news, because until the market finds a way to make the proper changes in the market to insure this does not happen again, no one will be sure which way to turn.  And until people know which direction to take, the market will always be volatile.

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