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Home Prices Tumble at Record Rate — Now What?

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During the second quarter of this year, the Standard & Poor’s/Case-Shiller U.S. National Home Price Index showed home prices tumbling by 15.4% as compared to the same quarter last year. This is the steepest drop ever recorded.

During the mid-decade housing bubble, a lot of people purchased over-valued property. And while the value of your house does not affect your monthly mortgage payments, knowing your property is worth less than its purchase price is not exactly good for your sense of wealth and wellbeing. If the housing bubble made us all feel irrationally exuberant. The housing collapse is going to make a lot of people feel irrationally pessimistic.

Many people are going to want “solutions.” Except, there is no solution to falling home prices. It’s not like the related but quite different sub-prime mortgage problem. Politicians can doll out billions of dollars to prop up banks and homeowners caught up in that financial mess. But the government cannot increase the price of our homes. This is not a political issue, it’s a market issue and it’ll resolve itself in time. Prices will stabilize but a lot of people are going to have to work harder and wait longer than they’d planned before gaining equity in their homes.

I mention all this for one very specific purpose: bad news is the fuel for presidential elections. A tree can’t fall in the woods without one or both candidates proposing an anti-tree fall initiative. As a homeowner myself, I am naturally inclined to throw up my hands and say “hey, whose going to help out here?!” But I’d be foolish to buy into whatever pandering “solution” a politician feeds me. There may be certain helpful initiatives on the local level (civic improvements can raise property values, for instance) but national candidates can only use the issue to demonize their opponent as a “do nothing” or lionize themselves as the champion of the people.

I don’t know if falling home prices will become as big an issue as the foreclosure problems, but I’m on the lookout for demagoguery by either side. We’ve already had gas-price demagoguery, I hope we don’t have the same for housing prices.