House price drop foreboding
A big decrease in home costs could trigger a drag on the economy that may last for years, expert says.
Alan Zibel / Associated Press
WASHINGTON -- U.S. home prices have fallen further since mid-2006 than during the 1990-91 recession and professional traders bet they'll plunge up to 10 percent more the next year.
If the speculative traders making big-money bets on where housing prices are headed are right, the question is not whether a U.S. recession is ahead but when it will start.
Sizable drops in home prices in a year would likely curtail consumer spending sharply. Yale University economist Robert Shiller, who has warned of inflated home prices, says a big hit to U.S. housing assets, worth about $23 trillion, would shock the broader economy.
"It will upset balance sheets, it will upset lots of our economic institutions," said Shiller, who argues that prices were driven higher by greed, not people looking to buy a place to live.
Adjusting for inflation, housing prices have soared 86 percent in the past decade although some cities, such as New York, Los Angeles and Washington, saw far larger jumps than most regions of the country.
Yet home owners across the nation tapping into credit lines pegged to the value of their houses has been a potent economic driver in recent years.
For the vast majority of U.S. households, the home is the most substantial financial asset they hold. If its value plummets, so does their sense of prosperity, which can restrict spending on everything from vacations to cars and eating out or buying new clothes.
Home prices fell less than 3 percent during the economic downturn of the early 1990s and rose through the 2001 recession, but have already dropped 3.2 percent over the past year, according to a closely watched housing market index created by Shiller.
"This time, we're in a bigger boom, and we face the possibility of a bigger decline," Shiller told lawmakers last week.
"It's not just an issue of a recession coming up, it's an issue of a drag on the economy, which might extend over many years."
A big decrease in home costs could trigger a drag on the economy that may last for years, expert says.
Alan Zibel / Associated Press
WASHINGTON -- U.S. home prices have fallen further since mid-2006 than during the 1990-91 recession and professional traders bet they'll plunge up to 10 percent more the next year.
If the speculative traders making big-money bets on where housing prices are headed are right, the question is not whether a U.S. recession is ahead but when it will start.
Sizable drops in home prices in a year would likely curtail consumer spending sharply. Yale University economist Robert Shiller, who has warned of inflated home prices, says a big hit to U.S. housing assets, worth about $23 trillion, would shock the broader economy.
"It will upset balance sheets, it will upset lots of our economic institutions," said Shiller, who argues that prices were driven higher by greed, not people looking to buy a place to live.
Adjusting for inflation, housing prices have soared 86 percent in the past decade although some cities, such as New York, Los Angeles and Washington, saw far larger jumps than most regions of the country.
Yet home owners across the nation tapping into credit lines pegged to the value of their houses has been a potent economic driver in recent years.
For the vast majority of U.S. households, the home is the most substantial financial asset they hold. If its value plummets, so does their sense of prosperity, which can restrict spending on everything from vacations to cars and eating out or buying new clothes.
Home prices fell less than 3 percent during the economic downturn of the early 1990s and rose through the 2001 recession, but have already dropped 3.2 percent over the past year, according to a closely watched housing market index created by Shiller.
"This time, we're in a bigger boom, and we face the possibility of a bigger decline," Shiller told lawmakers last week.
"It's not just an issue of a recession coming up, it's an issue of a drag on the economy, which might extend over many years."
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