Home prices going down

A reduced price sign sits in front of a house in Glendale, Calif.

Kai Ryssdal: It's a reasonable thought to expect that low interest rates would help the housing market. Sadly, the free markets are rarely reasonable.

A report out this morning shows home prices fell for the eighth month in a row in February. Homeowners across the country have been watching the value of their biggest investment drop for five years now, which is changing how they manage their money and plan for the future.

Marketplace's Nancy Marshall Genzer explains.


Nancy Marshall Genzer: Sixty-two-year-old Jake Lemon had it all planned out. The value of his Idaho house had sky-rocketed. He'd sell it, make a killing, and retire like a king.

Jake Lemon: I mean, I was really well set. I had world travel plans and stuff like that, but I can't do any of that now.

When the bottom fell out of the housing market, Lemon's house lost 40 percent of its value. He did sell it -- for a fraction of what it was worth at the peak of the housing bubble. He did make a small profit and now, he's hunkered down. Saving money.

So is everybody else. Alan Levenson is chief economist at T. Rowe Price.

Alan Levenson: What we're seeing is less of an ability to spend beyond our means. And the clearest way to see that is just to look at the personal savings rate, which was around 2 percent in 2007 and it is now close to 6 percent.

We can't use our houses as nest eggs anymore. Gone are the days when rising home values funded our retirements or college tuition for our kids. Gone are those home equity loans we took out to build a deck or buy new furniture.

Jonathan Basile is an economist at Credit Suisse. He says it'll take a while for consumers to start spending more. And even then, they're just going to open their wallets a crack.

Jonathan Basile: They're only going to do it slowly. They're not going to turn themselves upside down and dump all the money out.

Basile says the very slow growth in consumer spending means a very slow recovery for the economy as a whole.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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