Housing prices supposedly dropped in February 3.1%, prompting the doomers to predict the dreaded double dip recession. Yahoo! and the New York Times trumpeted the news like it was Armageddon. But I see it as good news for the economy and for America.
The losses that are being taken now on housing mean that sellers are starting to accept the drop in values, which actually took place two years ago. The market is begging for the inventory of unsold homes to reprice to the level that will unlock the wallets of real buyers, be they speculators, renters, or buyer-occupants.
I believe many people would sell their homes if they could land in a better or comparable housing situation. Instead they languish with underwater mortgages, hoping for a miracle in the market that will lift their value vis-a`-vis other homes they might covet.
The drop in selling prices is a signal that lenders and occupants are getting realistic about the housing market. When housing prices drop to their fair return rental value—the price people will accept to lease their house to make a reasonable return on investment—houses will sell.
For many years Americans have paid way too much for housing in relation to their incomes compared to the rest of the world. In China people pay more for tutoring their children outside of school than they do on average for housing. The same is true in Korea.
The housing industry has convinced Americans that their home is the best investment they can make. Historically homes have been awful investments, falling in value as often as rising.
The drop in February home selling prices means we are finally coming to grips with an inflated asset class which was overdue for a sustained fall.
Question: Are you happy to see housing prices fall?