Average House Prices Continue to Decline

Unless you have no access to the news you know that average house prices in the U.S have been declining for several years now. Even with all the effort to improve this situation it seems that the downward spiral is continuing, with no end in sight. Home prices are a major driver of the U.S. economy and as long as there is no rebound in home prices we can expect slow to tepid growth in the U.S. economy.

Recent activity reported in the Case-Schiller Home Price Index shows that on average in 2011 home prices in the U.S. have declined by 3.9 percent. This decline puts average prices for homes at the same level as in 2003, meaning there has been no rise in home values for 8 years in the U.S. While home values may once have been considered a great personal investment and store of value, this truism is now obviously untrue as there has been a zero return on most homes.

This decline in prices persists despite the fact that mortgage rates are at all time lows. Historically we have never seen such low interest rates on 30 year fixed mortgages, yet purchases of new homes remains tepid at best. One issue is that banks are being very discerning regarding who they lend to, looking for above average credit scores and larger down payments at a time when many Americans have suffered setbacks in credit ratings due to defaults as well as a lack of available cash due to lingering unemployment issues.

Once hot property markets Atlanta, Phoenix and Las Vegas have fallen further than other cities with prices below 2000 levels while other areas of the country are faring somewhat better. Washington DC continues to see increases in single family home pricing, possibly a result of the increasing size of government in the Obama administration and Detroit has rebounded after having some of the worst declines in the nation.

The vast inventory of homes in the U.S. keeps a damper on demand and the outlook for average house prices is a continuing flat to downward trend for most of the country. This is despite continued government efforts to increase borrowing and lending and to promote increased home ownership.

One possible effect of lower housing prices is to keep many workers from accepting employment in distant cities. If you consider that many Americans have either purchased their homes or refinanced since 2003, it’s realistic to assume that many are unable to sell their homes for reasonable prices in this falling housing price scenario. The data regarding foreclosures and people with underwater mortgages in the U.S. supports this idea.

So, not only does housing drag on the economy due to decreased construction spending and loan activity, but it seems to also be effecting employment throughout the nation. Home prices and home spending are one of the major drivers of the U.S. economy. We can expect to continue to experience low to moderate economic growth throughout much of the U.S. until average house prices begin to rise again.