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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Home prices coming down from an obvious bubble ... "less of an ability to spend beyond our means" ... while this may be painful for some, if it lasts it is unquestionably good for the economy at large. In the long run, we simply can't build our economy on empty promises; we have to build on---and create---real value, live within our means, and pay the debts we've piled up over the past half-century.

Patrick's comments are 100% valid. Why is everyone thinking that going back to bubble days would be "normal"? As home prices continue to fall, it is good for young graduates looking for starter homes. Why should home prices be kept high simply because baby boomers need to retire. Wouldn't falling home prices be a boon to younger generation just getting in to the work force? At least, they know they could afford to retire in their house paid off fully while they know very well that they won't have Medicare and Social Security available to them.

Both buyer's and seller's will have to change their thinking. For the home buyers, they have to start thinking of homes as a "home" and not an investment vehicle. For the sellers, they will have to accept the lower purchasing power of the new "normal" that is McJob incomes - part-time, temporary, minimum-wage. Say, $4-6,000 home prices.

I am curious why the norm in housing is now set at the high, and the "bottom" represents not a realistic bottom of anything like affordable housing, but 2005s rising bubble? Every discussion I've heard (perhaps I've missed your show that agrees with my premise...) acts like proper building of new homes (and associated employment) should "return" to levels that this last decade proved were unsustainable. Why doesn't this seem absurd to anyone but me? National builders can't make a big enough profit building homes people with a working wage can really afford (or so they say), so why would it be good for our economy to try to get back to the two incomes needed to almost make the payments housing centric economy? Isn't that a little like the steel workers in '70s Pennsylvania insisting that one should make $15 an hour sweeping floors (we know where that got our rust belt's economy)? Am I missing something here? Thanks.

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