NCPA - National Center for Policy Analysis

Housing Imperils Recovery

June 2, 2011

Home prices have sunk to 2002 levels, effectively wiping out a decade's worth of home equity and imperiling a fragile economic recovery, says the Wall Street Journal. 

  • According to the S&P/Case-Shiller National Index, home prices nationwide fell 4.2 percent in the first quarter of 2011, after declining 3.6 percent in the last quarter of 2010.
  • According to Corelogic, Inc. another 5 percent decline will increase the share of underwater homeowners with mortgages to 28 percent, up from 23 percent at the end of 2010.
  • A 10 percent drop will leave more than one-third of all U.S. borrowers underwater.

Falling prices hurt economic growth in a number of ways. Not only do homebuyers curb spending when their homes are losing value, but continued price erosion keeps families stuck in homes they can't sell because they are worth less than what they owe.

One bright spot: as prices fall, affordability is returning to pre-bubble levels in a growing number of markets.  Prices in Atlanta, Cleveland, Detroit and Las Vegas have fallen below their January 2000 levels, while prices in Phoenix are only slightly above that mark.

Source:  S. Mitra Kalita and Nick Timiraos, "Housing Imperils Recovery," Wall Street Journal, June 1, 2011.

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