"Over the next few years, more than three-quarters of the nation's housing markets will suffer some decline in home prices. Many will experience double-digit hits in a forecast that has worsened considerably in recent months."
"According to an analysis conducted by Moody's Economy.com, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more."
As home prices went up, Americans felt richer; when the opposite occurs, expect Americans to start feeling poor. Falling home prices affect consumerism in the US. The most important implication of a housing price drop is the possibility that it could trigger a decline in consumer spending. Considering the fact that consumer spending accounts for close to 70 percent of the economy, a decline would be a very damaging to an already fragile economy.At this point in time, the situation is unavoidable. In many markets, home prices have climbed to levels that make affordability impossible for the majority of the population. The laws of supply and demand dictate that as prices decline, the demand (ie: quantity sold) increases. For the housing market to complete its recovery, home prices will need to correct.
One last thing to note is that declining home prices will contribute to the already declining book value of homebuilders; look for homebuilder stock prices to decline further.
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