One of the most important sectors in the U.S. economy is housing, and right now home prices in most major cities are slipping. According to the S&P/Case-Shiller national home price index released on May 31, home prices are at their lowest since 2002. Prices have declined 32.7% from their 2005 peak and 5.1% from one year ago. Another S&P/Case-Shiller Index tracking 20 major cities showed an overall decline in home prices in March.
The only city in that group to show a gain was Washington, D.C. where prices rose 4.3 percent. Every other city studied showed a drop in prices. Some of the worst hit include Phoenix, which dropped 8.4 percent, Portland, Oregon, which fell 7.6%, Minneapolis, with a 10 percent drop and Chicago, which fell 7.6 percent.
As the prices of existing homes sales drop, the construction of new homes has slowed which affects the job market and the economy as a whole. Analysts say that when a $300,000 new home is constructed, it adds $300,000 to the economy as measured by the GDP.
As the prices of existing homes sales drop, the construction of new homes has slowed which affects the job market and the economy as a whole. Analysts say that when a $300,000 new home is constructed, it adds $300,000 to the economy as measured by the GDP.
1) Youngstown, Ohio, where the median price of a home is $55,000
2) Lansing, Michigan, $64,000
3) Toledo, Ohio, $64,900
4) South Bend, Indiana, $68,700
5) Akron, Ohio, $74,900
6) Ocala, Florida, $75,400
7) Dayton, Ohio, $78,000
Cumberland, Maryland, $80,700
9) Grand Rapids, Michigan, $81,100
10) Decatur, Illinois, $81,300
Things in the housing sector have not been all bad since the recession. In fact, the housing industry experienced a modest recovery of 5 percent over past losses starting in mid-2009. The home buyer tax credits were responsible for this small recovery. Unfortunately their effects fell off as soon as the credits expired last April.
Analysts blame the situation on continuing high unemployment, an increase in foreclosures, and the sale of distressed homes. According to the U.S. Census Bureau, the number of Americans who own their own home has dropped 66.4 percent in the first quarter of 2011. The peak was 69.2 percent in late 2004. Current homeowner rates are at the same levels as they were in 1998. Lagging home sales indicate that the immediate future doesn’t look good. Most experts agree that the rate of Americans who own their homes will fall further in the short term. A fall to new recession lows is predicted by the S&P?Case-Shiller Index which monitors 20 major U.S. cities. Higher lending standards make it difficult for buyers to qualify for home mortgage loans, which doesn’t help matters.
It should not be surprising that the number of current foreclosures along with the two or three million expected to occur in the coming months is what is a major cause for lower prices. In addition to the simple supply and demand effects of the foreclosures, their existence alters the perceptions and actions of potential home buyers. According to some estimates, nearly one third of adults know someone who had to apply for a loan modification, sell their home as a short sale, or went into foreclosure.
Many of the foreclosures on the market now have been vacant for months. With no one to maintain them, a lot of the homes are in poor condition inside as well as outside. This drives down the value of these poorly maintained homes as well as the other homes in the neighborhood. What’s it going to take to finally turn the housing market around? When other sectors of the economy improve, housing may soon follow.
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