What Do Lower Housing Prices Mean?

FIRST DROP SINCE GREAT DEPRESSION
Now it’s getting serious! When an eternally-optimistic group like the National Association of Realtors predicts that there will be a drop in national average housing prices, there are some very real problems in that sector.

As late as February, the Realtors were still holding on to a positive projection that the national median house price would go up a bit, about 1.9%. But earlier this month, its projection was changed to a drop of 0.7%. If that turns out to be correct, it will be the first time since the 1930’s that the national median home price went down in a year.

A lot of retailers live and die by the housing market, obviously furniture, appliances, electronics,
garden stores, and other homerelated items are the most prominent. But it’s not just retail that
is impacted; service businesses like landscapers, contractors, etc., are also caught in the slowdown. And financial institutions, many of which released financial results last week, are starting to feel the pinch on the bottom line as the number of mortgage delinquencies goes up.

It’s likely to get worse before it starts to get better. We’ve started to see some reports that it’s not just “sub-prime” loans that are getting into trouble; some financial institutions are starting to see delinquencies from borrowers who had better than a “sub-prime” ranking. The lenders are being forced to tighten their terms, which makes it harder for new buyers to get into homes. And, rising foreclosures mean more homes coming back onto the market, so the increased supply along with decreased demand portends yet lower prices to come.

This article follows the one referencing the decline in restaurant spending...one industry that can control the life of several others. With the drop in housing prices, you can expect some sort of ripple effect on your business. You can see the rest of this article by clicking the link below. Curt

http://ftp.media.radcity.net/ZSND/issues/april2007/C5714.pdf