March 31, 2009

Housing: Wealth

This article says that the value of housing has been decreasing rapidly for quite some time, but is now becoming more desirable as the price has decreased, and the housing market, therefore, is near the end of its slump. This is a study taking place over 20 major U.S. cities.

As housing is typically the largest asset ownable by a person, the cost of that housing also represents the ability of the owner to pay it and therefore the average housing cost is a good indicator for the average American's wealth and the strength of the economy. This assumes that lendees are not sub-prime and that people will upgrade their housing as they are able to do so.

The proposed reason for the fall in housing prices is that people stopped buying new houses as they were unable to afford the change from their current house to a new and presumably better one. This is most carefully attached to demand loss according to foreclosures. This represents a decrease in demand, which, in this case, was compounded over 4 consecutive years of near-constant decreases.

This article proposes that the last two months of this year saw increased selling and buying of new and old houses, and that this means that the housing slump that grew over the last 4 years is supposed to be getting near its end.

Along with the falling price of housing, the cost of loans decreased. This is an increase in demand as it becomes easier to take out a loan to buy a house that costs less. This agrees with the evidence that housing sales have begun to increase again, and will do so until the prices are back up on both loans and houses.

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