Home Price Plunge Continues

[Oct 17, 2007.]

Housing prices appear to be continuing on their downward slide. That's the word from the S&P/Case-Shiller home price index which was recently released.

In July, home prices recorded their most significant decline in 16 years, exacerbating worries about the health of the U.S. housing market. Home prices have been dropping steadily each month since the year began. However, the July decline was the biggest single drop since 1991.

A statement by MarcroMarkets Chief Economist Robert Shiller noted, "The further deceleration in prices is still apparent across the majority of regions."

Yet, interestingly enough, there are cities where prices are on the rise. These include the markets of Atlanta, Charlotte, Dallas, Portland, and Seattle. However, the growth in prices is slowing. S&P also reports that home prices in Atlanta and Dallas could move in a downward direction soon.

An additional factor at play in the housing crisis is the collapse of the subprime loan market. Subprime loans are those loans that are extended to buyers with troubled credit histories. The high default rate among subprime customers has caused some lenders to get out of the subprime business altogether. It's also had repercussions elsewhere in the loan industry, with lenders tightening their standards for borrowers in an effort to reduce foreclosure rates.

Meanwhile, some analysts believe that the housing crisis has heightened the threat of recession in the coming year. Observers do not expect the housing crunch to ease until the middle of 2008—if then.

Yet, the Federal Reserve's decision to cut an important interest rate by half a point could help to boost the economy. The decision marked the first time the Fed has reduced interest rates in 4 years.

At this point, it's unclear whether the Fed will move again to cut interest rates before the end of the year. Two additional meetings of the Federal Reserve are scheduled before the close of 2007.

Julie Ann Amos
October 17th 2007

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